The Dow is down 390 points as I write this. It is normal that the market falls the day after a big rally, as some investors are always waiting to "sell into a rally." After such a roaring rally at the close yesterday, a rumor hit the market in the wee hours that the French banks were being downgraded. It was a rude reminder that the current bear market reflects primarily European problems, not U.S. problems. There is a specific rumor on the French bank, Socgen. Even though the ratings agencies has re-affirmed the AAA rating of France and its banks, the market is still shaken rudely.
The specifics are not as important as the strength of the reaction. This is enormous instability. The Dow flucuates a hundred points in only minutes. It may be that the bond vigilantes are circling French banks the same way they did U.S. banks in 2008. If so, Europe will continue pulling us down. If not, there is a good chance we could be putting in a floor.
Putting some money into the market now is a defense against missing the bottom. Having a good deal of cash right now is a defense against further declines. Pick your defense!
I still think a parabolic move down is no more sustainable than a parabolic move up, i.e., that we are over-sold and have more upside potential than downside. We'll see . . .
