First of all yesterday was NOT a panic washout day nor was it a panic bottom day that normally comes at the end of a correction. There is no sign at all that yesterday was a definitive bottom of any sort. The odds of the stock market going up from here straight up to the highs - without first retesting yesterday's low or even making new lows and then having a panic washout are about zero. That means the risks are still to the downside and it makes no sense to do any buying when it comes to stocks in general yet.
This correction is going to bring a buying opportunity for all of us, but you won't be able to take advantage of it if you buy in too early and then get all skinned up.
You can see the people buying on the blogs here. Unfortunately yesterday almost every single email I got was from someone talking about buying. One single person emailed and asked if they thought they should sell so they could buy in at a lower level, but other than that all other emails were from people talking about buying.
In fact some emails, such as this one, were boasting about buying:
"Hey guess what Mike you were WRONG. So I am to beleive you are a great stock guru??? the market did bottom on the open. Guess what the Japan market is up. PANIC will make losers You should know this. The small guy should probably cash in some chips now and let the big boys screw it up so we can get back in on the low."
People get furious when you try to caution them on the stock market. There are a lot of scared and desperate people in the market now and it is those people that ultimately create panic selling washouts when they happen.
The fact that the market didn't have a panic washout and went up after the open yesterday evidently forced many people to buy stocks out of either fear of missing out on more gains or in pure desperation of doubling down on losers to make up for losses. There was no fear and this makes me think that ultimately the market is going to end up going lower.
I feel like I gotta talk tough to you for a moment, because this is where a lot of people can lose money fast.
The LAST thing you want to do is to be doubling down or buying into penny stock uranium companies that have no earnings and are nothing but stock promotions. I don't care if a big newsletter guy recommends them. Many of these uranium companies are pure garbage and with what is happening in Japan it is hard to imagine speculators are going to just rush into them anytime soon. They are yesterday's story - and all they were was a story.
People like to chase after things falling the fastest and that is the another thing you do not want to be doing here.
Amateurs double down on losers.
Amateurs see the market or a stock go down and buy with doing little analysis.
Amateurs fail to wait for good entry point that provide good risk to reward levels.
Amateurs say they look at charts and trends, but they do nothing but trade on pure emotions and flock into garbage stocks.
In corrections like this you want to buy into the sectors and stocks that act the best and not the worst, because those that hold up during corrections tend to lead on the next rally. And if you want to use corrections like this to invest and hold then you buy into stocks with good earnings priced cheaply. I say these things and preach them everywhere, but it is like very few listen or can apply what I teach them.
Ok, let's assume the stock market did bottom yesterday. In that case it will likely go sideways for a few weeks and repair itself from the damage it just went through. Without a panic washout bottom it is not going to just go straight up so a sideways phase is in store IF it bottomed yesterday.
That means that the risks are still to the downside. There is no reason to buy now, because you are not going to miss out on immediate gains. You are better off waiting to see if the market can stabilize here and go sideways. Waiting removes you from the risk that it didn't bottom and is in fact going to ultimately go lower - which I think is more likely honestly.
I know the market may trade up for a few more days and people are going to get all excited. This is my way of trying to warn you away from just following the herd around and to try to get you to put more thought into what you are doing.
Before the open yesterday I thought the stock market correction could very well come to an end before the week is over. I thought some real panic would come into the market yesterday and I'd be looking to buy today. But that didn't happen and this actually makes me more negative on the market than I was before the open yesterday.
Last Thursday when the market broke its February low the put/call ratio actually went down. So far we are seeing people try to buy into down days in the market and people as a whole seem to be confident and bullish. That type of behavior and sentiment leads to corrections that last a bit longer than just one or two weeks and it now looks to me like this one is going to actually go on for several more weeks for here. Corrections end when people are scared and so far they haven't been scared.
Most likely the market averages will meet up with their 150-day moving averages before this correction is over with. That doesn't mean the S&P 500 is necessarily going down to 1200, because the moving average is slowly rising everyday, but somewhere in the 1220-1240 area now looks likely.
