Tuesday, January 08, 2008

Nasdaq Makes It Eight In A Row

Talk about going down in a straight line? I can't remember the last time I saw the Nazz down this many days in a row.

The market was actually looking very nice with a couple hours to go, but then the comments by the CEO of AT&T, and the trading in Countrywide (CFC) and others proved to be too worrisome, and investors sold stocks into the close.

A reader asked me if I see any silver linings? Sure. I know it's hard to remain constructive during these corrections, but if you go back and look at all the big corrections we've had since this bull market began, you'll find many similarities. It never feels good, which is why so many people bail at the bottom, usually just as the market is ready to bounce.

Right now, I see the sentiment indicators getting very spiky again, meaning they are flashing extreme levels of pessimism:
  • The VIX spiked +7% today to 25.4; but it hit 30 in November
  • The CBOE put/call ratio closed at 1.20, a very high reading
  • The ISEE closed at a very depressed level of 86
  • The ARMS Index has been high all week (closed at 2.14)

The market is getting oversold, and will surely bounce. I don't know if it will bottom tomorrow, the next day, or next week. I wish I did. But I know that I have never made money selling after this type of big decline. Rather, if you feel like lightening up, wait for the rally.

We could be in for a multi-month trading range market. If that is the case, then a good strategy will be selling rallies, and buying big selloffs. Small incremental gains will beat the market, until it is ready to take off again.

That is my game plan for the near-term. I am still bullish overall, but would like to wait for the market to prove itself. As I have said before, the character of this bull market will likely not show itself in these declines, but in its ability (or inability) to rally back.


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