- Market witnessed third day of selling and stocks down 4% or more approached 300. Rapid deterioration in many numbers indicate hint of panic. So a bounce in near term is a possibility.
- When market enters correction phase, risk management is critical and moving to cash might be better option till market stabilizes. Also important is perspective.
- Bearish arguments look most persuasive during such time and there is no shortage of scare mongers who will tell you world is coming to the end. Tuning out the bearish propaganda is key to successful trading in my experience. Same bearish pundits were hyper ventilating after February correction and many missed one of the best rallies in years because of that.
- A good correction and a correction of some magnitude in % term or time span is good for lengthy duration of a rally. That is what gives you lots of candidates on month or 65 day weakness. Plus best moves in stocks happen when price action in sideways or down and expectations are low and then the company has earning surprise. So this correction will set us up for good rally sometime during the remaining six month of the year.
- The next bullish phase will be when the month 50% plus start approaching 3 areas.
- The IBD 200 and 100% plus universe will undergo rapid change during the correction. Many stocks with high 65 days price growth will be vulnerable and drop out and new breed of stocks will slowly enter the list. Some stocks will withstand the correction and they are the ones to keep an eye on.
- Corrections are good time for R&D and perfecting new strategies. I have been working on couple of new concepts and trading systems and will be spending more time on them during this welcome pause. The correction also is good to catch up on my pending pile of reading material.
Later: Why there are only 3 books on short selling
While there is no shortage of perma bears and bears who every year predict 50% drop in DJ or Nasdaq or SPY or everyday come out with new conspiracy theory or claim to be macro "big picture" analyst and who are persistently wrong about macro trends , if you scratch below the surface, few of them have any process or method to find systematically short candidates. The perma bears are incredibly dumb people with no method but bearish delusions. The bearish cult has few valid method but more lung power.