Well, that wasn't too painful. The selloff in world markets of the last two days arrived on Wall Street this morning but after a 400+ point selloff at the open the market spent most of the day moving off those lows. The Fed cut this morning could have been timed better - I would have much rather seen Bernanke and Co. wait until the market was down 500 or so before announcing the cut - but it had the intended effect.
I would have much preferred to see the market close flat or even up today after the big morning dive. I would have felt more comfortable saying that the bottom is in - in candle stick charting a day like that is called a hammer and is very bullish - but I think this was probably enough to say that we are very close if not there. We did some buying this morning and will look for more buy opportunities on pullbacks over the next few days and weeks.
The market is cheap relative to interest rates and if earnings don't collapse this will be seen as a major buying opportunity. I have maintained for some time that the housing problems would not cause a recession and I still believe that. The politicians and the press have been doing their utmost to talk us into one, but the US economy is very resilient.
As for the market, all the sentiment indicators I watch are at levels similar to late 2002 when the last bear market ended. I think part of the problem with the market has been a sort of institutional memory of that period. Investors remember how much they lost and don't want to repeat it. But the market today is a much different animal than in 2001. The S&P 500 was trading for over 30 times earnings back then versus just 15 times now and interest rates are lower. And remember the market will bottom before the economy does - or at least it always has in the past - so you can't wait for things to get better before buying.
If you are a long term investor with a diversified portfolio this is just routine stuff. Your bond and commodity investments have gone up and your stock investments have gone down. It's time to rebalance by selling some bonds and commodities and buying some stocks. You may not catch the bottom but this is probably close enough. Don't make drastic changes; do it in increments. That is the essence of investing - buy low and sell high. It takes guts at time like this but it is essential to being a good investor so take a deep breath and do the right thing.