Friday, January 22, 2010

Quite A Correction....

After the action last year, many market players have probably forgotten what a market correction looks like. They were rudely reminded this week.

We had our first warning a week or so ago when we had poor reactions to good earnings reports from INTC and IBM. The market came back strongly on Tuesday as it anticipated a Republican victory in Massachusetts. Market players were excited about the possibility of some political gridlock in Washington but failed to anticipate that the Obama administration would now shift its focus toward going after banks and Wall Street.

The market woke up to the danger of this new political focus on Thursday when new bank regulations were proposed and GS sold off hard after its earnings report. A very good report from GOOG that was sold hard kept the downtrend going and the dip-buyers showed only minor interest early and disappeared late as we rolled over and made a new low for the year.

So many times last year, we quickly recovered from these selling squalls, but this time the selling has already been more intense than what we have seen previously, and the bounce attempts have been extremely weak.

At this point the technical picture and the negative news flow support the idea that this time it is going to be different and we aren't going to quickly bounce right back up. We have a good setup for an oversold bounce with AAPL earnings on Monday night; we'll see.

The good news is that this market has needed a correction for a while. We need to shake out the excesses and eliminate complacency. This will ultimately lead to better trading opportunities, but the key is to protect your capital while they set up.

I suspect that next week is going to be a roller coaster ride.


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