As we wrapped up another week of HEAVY distribution in the markets, there are many things we need to consider as we tread forward into February.
Historically, when the markets do not perform well during January - 64% of the time in the past, that usually sets up a very weak remainder of the year when it comes to accumulation and gains in the market. In addition, February is GENERALLY NOT A GOOD MONTH FOR the stock market. Also, the indexes broke below their 50 day moving averages (essentially shedding any gains it has made in the last two months in a matter of TWO WEEKS!).
At this point - I hope you all have cleared to cash. It is so much better to sit on the sidelines as the stock market tumbles and allows this much needed pullback considering it has gained so much in so little time (from last March to mid-January). As you can see, even when "bellweather" companies (these are companies that generally affect either positively/negatively the general market depending on their release of their earnings) are reporting PROFIT, the general market STILL REACTED NEGATIVELY. Some examples this week are AMAZON, APPLE, FORD. Also, one more thing to be aware of are some of the Political Events that can dramatically affect policy. We saw some of that in the last couple of weeks with China tightening on lending (although I think this is more smoke than fire since the lending was to address the HOUSING BUBBLE they are currently going through...similar to what we experienced in the US Housing market around 3 yrs ago) as well as President Obama's State of the Union and earlier response to the BIG BANKS. Other big events are the confirmation of Bernanke as well as the Geithner hearings.
The tumble has begun that even POSITIVE NEWS cannot change the direction we are heading. So the next question to ask is - what to do now at this point? Well...if you are an avid investor - you will want to go back to researching and studying the market and making sure that you are aware of what is going on EVERYDAY to get a sentiment of when this bear market begins to show signs of its end.
Many who have been in the market since last year's Bull Market (March 12th, 2009) are now locking in profits and going back to cash. During this time - "smart money" is moving out as "dumb money" move in late to the party. I hope you are not in the latter...since that last Bull party is over.
Much of my information indicate that most stocks are going to test their 100 day moving average (and will probably break below it...then its on to test their respective 200 day moving average). It is very difficult to ascertain just how far the markets need to correct in order for investor confidence to realize the values that exist in the market.
One thing is for sure - just because you are not holding any positions does not mean that YOU SHOULD JUST SIT IDLY BY. Continue doing your homework. Continue doing research - study where INSTITUTIONS ARE TAKING THEIR MONEY. An example is by studying the different indexes. On Friday, the AMEX Biotech index (BTK) was up slightly when the rest of the market experienced losses.
A word of caution - GROWTH STOCKS generally suffer more from a bear market correction more than the general market. Now is not the time to risk your hard-earned capital. Instead - keep a close eye on your watch lists to see if they are establishing new bases and resistance.
Overall, trying to time the market's bottom will only make you a very unhappy investor. Even going back to paper trading (simulating purchasing stocks with imaginary money) to make sure your skills stay sharp would probably be the better strategy.
I do not like to sound like I am saying the sky is falling. In fact, this correction can and will only help set up our next bull market. One stock I am watching very very closely is BYD Auto (BYDDF/BYDDY). This stock is an OTC Pink Sheet. Warren Buffet's Berkshire Hathaway has a 10% stake in this company. Again...not a recommendation to buy - do your own DD. ^^
Just remember - Pigs get fat while HOGS...well....they get SLAUGHTERED.
BD
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