DJIM #42 2007

It's been a while since we had a week like the one we just experienced.   Some can argue that the sort of week we just had was due for a while.    The fact of the matter is, that prior to last week, we were actually notching new 52 week high from Naz and all time high from Dow.    Both oil and gold are at record highs and the U.S. dollar is at a record low against other major currencies.   There seems to be enough economical topics out there that can spark some endless discussion.   The bottom line question is, was the sell off last week justified and is there more sell off to come?    In terms of justification, yes and no!   Yes because market has become over extended in a very short time and selling off some would actually bring its pace to a healthier level.   No because other than the names that needed to be taken down, there's no reason for many growth oriented names to get taken down as well.    This is pretty much the effect of "collateral damage"!   When mood is set and things get rolling on the down side, technical support gets breached and it's just a matter of selling everything down.    Many traders, especially the short term ones we know are programmed to sell into a sell off, as oppose to what the contrarians would do.     Since short term traders' majority holdings are from the growth and momentum side, it isn't surprising most of our favourite plays on the watchlist get taken down, severely.    Last, many of us are programmed to stand on the sideline when it comes to a severe sell off like Friday, which means no bids.

So what is the strategy of DJIM traders here?   Just like every other severe sell off we've faced in the past, we stand on the side and wait  for signs of a turn around.     We are still early into this earning season and there are many many big reports that have yet to be released that can turn this market around in a hurry.    From what we have seen so far, majority of the technology and growth oriented companies have reported good earnings.   In any case, we want to see some stability in this market to absorb any more credit crunch related news.  Let it be a concern and let it be the wall of worry.   We haven't hit November yet and that is usually when many of our small caps release their earning.    The bottom line is, that if a sell off is going to come to cool off this market, it might as well be this time of the year.     If you got caught off guard and took some hits last week, make sure those hits get dealt with asap.   The last thing you want is having some losing positions that not only get to you mentally and emotionally, but also inhibit you from making good on the next trading opportunities.