DOW 8800....

As the DOW sinks below 10K for the first time in a while, I’d like to remind everyone that I have been talking about how overvalued the market is since the beginning of the year. Now that we’ve had about a 5% pull back over past couple of weeks, investors are trying to figure out what the next move should be. Tell you what, if you are investing in mutual funds exclusively, you might want to head for a stable value fund. I would not recommend heading to a bond fund at this point, since interest rates are nearly zero and have nowhere to go but up. When that happens, it will cause bond prices to fall. If you do not want a stable value fund to keep your principal safe before the drop in the fourth quarter, then go to an international fund that has holdings in Latin America (Mexico and Brazil especially).

If you are not investing in mutual funds exclusively, then there still good individual stock buys. The energy sector is down and could continue to fall, so be weary of selecting trades there and keep an eye on it for long plays. Homebuilders are still down and have been down for a long time and will still be down for a long time. This is an industry that you can build a large position in over time.

Since this is a global economy, diversification is paramount. With the market ready to take a tumble, getting a good mix of international, domestic and emerging markets is the key to weather the storm. Reallocating money to a stable value/money market fund, even with low interest rates, might be the best bet in the short term as we see how the market will react. I recommend checking out the beaten up sectors to see if you can find good companies who have been beat up simply because of the business they are in. Once the drop happens in about 6-8 weeks, we’ll see who has the testicular fortitude to dive into the market during this time. Be prepared to take early paper losses and don’t be too quick to bail out. Good luck.