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Where Is The Market Headed?

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The recent plunge in the Dow Jones and the markets worldwide has dampen a lot of optimisim in the market. This I feel is a good sign because of too much 'exuberance' (a word that is slowly becoming a cliche) in the markets. It shows investors that there are limits to how high the market can go up to and will extinguish somewhat the high temperature of the speculators in the market.

I must admit that I am guilty of doing a bit of speculation on my part too. But, I always put in a bid that I can honour- ie, I can always buy the shares. Now, with the markets going southward, I have actually exhausted the money that I plan to use to buy shares when the market is down. This is goes to show that investing needs discipline and a good investor is not always looking at prices and would sometimes take time off from the market. Warren Buffett (I'm sorry if I overquote him, but he IS the best investor on planet) puts it very nicely, his investment time horizon is hopefully forever.

So where is the market headed? I personally think that it is consolidating the heady gains made for the past few years which saw most markets all over the world climbing back to near the 2000-2001 mark before the dot com and 911 saw the bubble burst on the markets then. So it is likely to trend sideways, moving slightly up and down in a see-saw manner. This is actually important as it will allow the companies earnings to catch up with the prices so that a more stable P/E ratio can be attained. The volatility of the market is likely to be maintain till either very bad news or good news hits the market to send the market prices through the resistance levels.

The thing to do now is to take profit when you can and slowly build up a small pool of money to buy into the market when the masses of people are all selling and prices are at least 1/4 of the previous high attained(unless it is VERY bad news).

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