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Is This Correction Different?

Published on May 6, 2010

Is This Correction Different?

May 6, 2010

You might have noticed my cautionary tone over the past week or when I started by saying that market requires caution and Little Johnny’s are coming to the market who are usually late comers to the party.  Then, in the OPNewsletter member’s only section I talked about different levels to watch. Today Shanghai was down little over 4%, NIkkei over 3% and futures are pointing to lower opening.

I have, for the time being, decided to defer opening June income portfolios beyond what we have already opened. I am not excited by the market action so far, in this round of pullback. The distribution days are increasing. We had 3 quick 90% down days, and after the last 90% down day on Tuesday we didn’t see any rebound that is usually associated with such a sharp sell-off.

Dow May 5 2010Attached chart shows past 2 major pullback since bottom was formed in Mar’09 and if that history is any guide, we can expect at least a few more % trimmed before next leg starts. The behavior of this interim top is different from the past two pullbacks. The preceding candles were slowly becoming large and it feels to me that this time, probably, is different. But this has been a powerful uptrend, denying any chance to bears, since Mar lows so who knows what lies ahead? So watch out for any reversal. If any bounce is not sponsored by surge in volumes may be it’s time to be more conservative.

At this juncture, I would personally rather preserve capital than to invest for “potential” opportunity. Upside is limited, downside may be a long one. I am watching 10,700 and 10,300 for Dow with keen interest. It may or may not happen, but trading is not a business of coulda, woulda, shoulda.

Food for thought—a month of loss requires at least another month (in the hopeful case) to get back to where the capital was 2 months ago!! (leave aside the opportunities that might have been otherwise picked up on a reversal); so why to unnecessarily waste that time and energy. Bottom line- If I were to make a personal suggestion, you may want to defer going long at least as of now for the time being.

Those are just my thoughts, pls do your due diligence before making any investment decisions,

Warm regards, OP

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