DJIM #6, 2010

Five weeks into 2010,  it really makes us check our calendar again to see if it's really 2010, as opposed to early 2009.    When the market sells off like it did during the last three weeks, it's rarely the fault of a single catalyst or a fundamental change.    Rather, it's the result of a perception change and the ensuing emotional execution that handed us one of the roughest stretches in a long time.   Yes, you have to go back to March of 2009 to witness the kind of volume we've just witnessed last Friday.    In fact, there were only TWO trading days in the entire year of 2009 that eclipsed the trading volume of last Friday, as far as SPY is concerned. 

Can this be the capitulation volume we wanted to see?  Perhaps!   Based on the price action and the way it ended the week, there's a pretty good chance that it was the case.   Well, at least it seems every Bull & Bear is calling it a key reversal day this weekend due to "technicals" .    We won't be able to confirm this for another few days.    From the January peak to the intraday low of 1044, the recent pullback represents a correction of  >9%.   This is quite substantial if the reason for this selloff is not fundamentally related.    The reason we are saying fundamental is because there really hasn't been any significant change in either the Econ. front or corporate earning reports that suggest our Economy is going backwards.    The concern that it may go backwards is what we call the perception change.    Ok, so we admit that some people may be disappointed with the pace of economic recovery and decide to sell their stakes to protect their profit.   This is fine with us.    What we don't fully understand lately is the number of folks jumping on the bandwagon that are bringing out the old doomsday scenario to exaggerate the recent sell off.     We hope the volume on Friday was the indication of capitulation and not just short covering due to expectation comments out of Europe would be calming over weekend.  If this was just that, a hard ETF short cover,  we won't have a Monday follow through.

Again, SPY may have pulled back close to 10%, many of our widely followed plays have pulled back more than 25%.   This to us,  is a heck of a correction already.   Time to start to build some positions?   We think it's time to at least look at some commodity related ETF and stocks.  Still despite the short covering late Friday,  we have to wonder if potential buyers will remain ’tentative’ until many issues show signs of being resolved.