Stock Market Slide Worsens

The U.S. Stock Market closed at session lows, as selling accelerated in the last hour, leaving the Dow Jones Industrial Average with a 500 point loss after trading higher earlier in the session. The market started to head lower shortly after the positive open, and selling began in earnest during and after Fed Chairman Bernanke’s speech. As I write this blog this evening, Asian stocks are plunging further.

There is not much else to add, except that it does appear that the markets are in the capitulation phase. The rate of descent is simply too fast to continue for much longer. However, there is the possibility of a very scary sell-off this week that could finally trigger the final capitulation.

Aggressive traders who are able to follow the markets intraday should pay close attention, because there is an opportunity at hand. When this market decides that enough is enough, the reaction to the upside will be violent. ETF’s may provide a decent vehicle to capitalize on this situation.

An ideal intraday setup will look like a double bottom after a steep drop early in the session. The market will make an intial low, off of which it will bounce a bit. The market will then test this low and bounce violently to the upside, and this is when aggressive traders can put on a position.

Another scenario may just involve a rubber band that is stretched way too far. In this instance, a huge sell-off will run out of steam, and the market will react violently to the upside. This scenario is more difficult to trade. In the case of the S&P 500, if there is a big sell-off early in the morning, and the market then proceeds to rally off of that low by 40 whole points (say from 950 to 990) by noon, then you have quite likely seen the bottom.

If you are a long term investor, and not a risk taker, these scenarios will offer good opportunities to add to long term positions at bargain prices.

Keep in mind that the markets are acting purely on emotion right now. Fundamental analysis has been thrown out the window. It has been quite painful for long term investors to watch their portfolios dwindle, but this should be viewed as one of those few major buying opportunities of a lifetime, similar to the recovery from the 1987 crash, and the end of the 2002 bear market. Still, traders and investors must continue to be careful in this environment.

In regard to any potential Ultimate Stocks, it will likely be at least six months after the low is in place until the candidates we seek will be trading in a manner that will allow us to capitalize on major new uptrends. This is why we should focus our attention on trading indexes, ETF’s and mutual funds to enhance portfolio profits.

Stay calm, stay cool…the opportunity will soon be at hand, and possibly as early as Wednesday!

Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com