Tuesday, November 16, 2010

Stocks Tumble in Heavy Trade As Fears over Economic Conditions Grow

European Debt Crisis 2.0 and Chinese Inflation strike fear in the market.

“If a tree falls in the woods and no one is around, does it make a sound?”

There were plenty of traders around to see the market make take a dive to close lower (NASDAQ) for the fourth straight day. Volume jumped across the board as traders feared the worse in the European Debt crisis 2.0 and Chinese worries over inflation. Late day selling tried to collapse the market, but buyers were able to push stocks off the lows of the session. Despite the last ditch effort the market still closed near session lows.

Investors Business Daily put the market into correction mode after signaling the market in correction. IBD has had a streak of bad luck when putting the market into correction mode. After putting the market in correction we saw the July rally and again in September. While leading stocks have been beat up pretty good after a few days worth of selling they still are holding their moving averages. Remember, taking profits, working a position is a wise strategy and if you failed to take profits on the way up you will not forget in the next rally.

The McClellan Oscillator has moved further into extreme oversold conditions. Remember, these conditions may last longer than you might think. However, the oscillator is about at the same levels we saw at the February, July, and August/September lows just before the market rallied. At the very least, we should see some sort of bounce from the market. Will it turn into a new run, that remains to be seen and quite frankly we’ll need to see some serious strength from leadership. Anything is possible, but panicking and selling out because you panic will only net you heart ache.

It appears many pundits are rushing to be the first to call a top in the market and get on the short side. This includes IBD, who I respect greatly and appreciate the information they provide and that I pay for! At any rate, we did suffer quite a bit of damage, but we have yet to see “the great unwind.” The market is the ultimate pricing mechanism, but speculating on what may happen is gambling. Take cues from your tocks and if they are flashing classic sell signals.

Stay prudent in this market and avoid panicking!

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