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Is the Market Correction Over?

Published on February 5, 2010

Is the Market Correction Over?

February 5, 2010

Yesterday’s Stock markets continued the correction that started from the peaks on January 19th and closed on new lows (since then) as DJIA , S&P 500 and NASDAQ fell 2.6%, ~3% respectively.  Dow Transport is now sitting at 200Days EMA. It was an intense selling day, downside volume dominated the exchanges. It was a heavy distribution day too as total volume expanded to over 6 billion shares on the NYSE, almost 40% heavier than Wednesday’s session and well above the 30 day moving average. Barrons attributes this sell-off to margin calls, short squeeze on Dollars.

For OPNewsletter, it was one of the excellent days. The speculative MA earning’s trade delivered 300 to 400% returns for 1 day holding. Overall Feb’10 portfolio, as of this writing is above +5%. We have started opening Mar 2010 Income Portfolios, if you would like to join OPN waitlist, pls click here. Hope you have been tuning to my Tweets as well, where I share some trades for free.

This correction was not a complete surprise though; we started observing something unusual. Recall when I first talked about the inverted implied volatilities, then the change in Market attitude when Dow was creeping in lower channel of the uptrend, and then a brief comparison vis-à-vis 1930s. In member’s section of OPNewsletter, I was little more vocal about my uneasiness. In Fact, for this month, we invested only 36.5% of OPN portfolio capital vs. 60-70% usual.

ScreenHunter_01 Feb. 05 17.16

As of Thursday’s close, the S&P 500 has dropped 7.6% over 12 sessions, making it the deepest of prior corrections in the primary uptrend by eclipsing the June-July decline of 7.1% over 19 sessions.

What’s next? If Thursday was end of the correction, we should see a quality rally with an expansion in volume. However, if selling continues into today, the next key level of support on the S&P 500 is the 1,030 area. Dow needs to hold on to 10K.

My personal bias, the correction is not over yet. But hey, Market doesn’t listen to OP, It Marches to it’s own beats.

Trade Carefully, Trade Profitably, OP

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