Dow Drops 311 Points

Jason Goepfert from Minyanville says that we are looking at 3 possible scenarios from here.

1. We’re about to enter a secular bear market
2. We’re about to see a true one-day crash, akin to 1987 or 1998
3. This is about it for the selling, before another powerful lift higher

You could chose option 3, but I’m sticking with safety and avoiding 1 and 2. This is for simple reason. When looking at the day-to-day movements of the Dow it really doesn’t make much of a difference since its mostly due to technical trading. But today was different since it was all based on fundamental reasoning (scenario 1).

This can be seen in a few aspects of today’s trading. The Dow’s P/E ratio magically rose two multiples today and is now trading at 21 times earnings (including the sell-off).

Also gold fell together with stocks versus a rallying dollar keeping this market intact. Any future declines of virtue will have to be made against gold not along side it.

This is the tip of the iceberg and may even be the decline that leads us into a recession due from housing. It will probably be an elongated bear market (scenario 2) rather than a quick fix (scenario 1).

Sentiment doesn’t turn in a day. In the event it does, believe me you’ll hear about it.
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