I only realized at about 5.20pm today that US market plunged yesterday (Thursday) -- the Dow Jones industrial average plunged 317 points, or 1.9 percent, to close at 16,563 Thursday. The Standard & Poor's 500 index dropped 39 points, or 2 percent, to 1,930. The Nasdaq composite dropped 93 points, or 2.1 percent, to 4,369.
I take such plunges very seriously as it could be the start of a big correction or bear market -- of course there are also many false alarms but normally I will take some precaution by selling off some stocks to raise cash. Fortunately, I have just divested two stocks (MTQ and Innovalues) and thus sitting on a pile of cash and do not need to sell more stocks next week to raise cash.
My portfolio has risen in value for 7 months consecutively since the beginning of this year; hence, I have asked myself the question, "How long will the bull run continue?" The market's muted response to negative news and low trading volume assured me that the undertone is bullish (see my last article posted on 27 July captioned My take on the current stock market ).
I continue to believe that the bull is intake and the market is just undergoing a correction now -- however, I should not take chance and rightly should activate my risk management plan by raising cash. The good thing is that, since I already have fair amount of cash after the two recent divestments, I could afford not to sell stocks next week but to observe how the drama unfolds.
If an investor wishes to pick up bargains after a market correction, it is best not to catch a falling knife but wait untill the selling has been done -- this happens when the trading volume resumes to normal.
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