In a continuation of my post from yesterday, I am not aware of any single indicator that can tell us when a market crash will occur. (I wish I were!) So, what I have done is reviewed previous significant market downturns and determined some common contributory factors that make sense in theory, as well as empirically.

Although growth in the U.S. continues at a reasonable rate, there are undeniable signs of a more global slowdown, especially in China. Even though we are doing reasonably well, the slowdown in the rest of the world does affect us.

After the decline at the end of the day yesterday, I’m getting more concerned about the next couple of weeks in U.S. markets. Although fundamentals remain strong, there appears to be a bigger break in confidence that could well lead to further downward movements.

Let’s take a look at where the market might be headed.

Thursday was rough for financial markets, especially here in the U.S., and it looks like the damage is continuing elsewhere in the world today. As I write this, Asian and European markets are down, with China getting hit particularly hard, and U.S. markets are off slightly. 

Over the past month, we saw a market recovery that seemed like it would lead to new highs, a pullback on Greece and China, another recovery, then another pullback, and then a bounce up followed by another pullback on the Chinese devaluation.

What’s going on here?

Back in February, I looked at U.S. market valuations based on several different metrics, concluding that valuations were quite high—at or above the levels that prevailed before major corrections.

With oil prices down as much as they are, many investors are asking whether now is the time to buy. “Buy low, sell high” makes a lot of intuitive sense, and with prices low, buying looks like a good move.

Here at Commonwealth, I’m considered the resident gold bug. In investing, that’s someone who looks to gold as a safe investment, a guarantee against systemic failures, and who is typically bullish about the price of gold.

I don’t actually fit that description, as I’m neither bullish on gold at the moment, nor do I think gold is a safe investment, nor am I a disaster buff looking to use gold as a hedge. I am, however, one of relatively few people in the firm who are even willing to consider using gold in a portfolio in a significant way.

For all the media coverage of China lately, Western knowledge of these markets—and the ability of U.S. citizens to invest in them—is actually quite limited. As the recent crash has shown, we need to learn more about the Chinese stock market, particularly given that Western firms are increasingly looking to include Chinese companies in their indices.

Yesterday was a rough one for financial markets across the board. China’s markets dropped again, U.S. markets fell in sympathy, and the New York Stock Exchange shut down with technology problems. It’s the end of the world as we know it!

Or maybe not. Although there are reasons for concern, U.S. investors shouldn’t be too worried—as long as they’ve planned ahead for an eventual downturn.