Friday market update

It was another ugly day on Wall Street. I won’t go into the details, other than to say investors are clearly panicking as you can see for yourself.

Fear is a powerful motivator and it is a driving force all by itself. What you must do is to make sure you don’t lose your head in all of this.

People are waking up to the realization they didn’t plan for this to happen. They have had no risk management safe guards in place and they don’t know what to do, other than to head for the hills.

This kind of frantic selling reaches extremes rather quickly. Today we again saw 932 new lows on the NYSE and it won’t take long before the market is washed out again as we saw in November.

I want to show you a couple of charts that I am keeping a close eye on.

This first chart is the monthly chart of the Nasdaq Composite.

Notice that the Nasdaq Composite as well as the Nasdaq 100 has not taken out the 2002 lows. The Russell 2000 is still above its 2002 lows and fast coming up upon it.

As bad as the selling was today the Nasdaq Composite is still above its November lows. The spread between the daily Middle Bollinger Band line and the 50-day moving averages is getting a bit too wide suggesting the risk of a short-term counter short-covering rally may be close at hand.

Notice, the McClellan Oscillator is also near the low part of its range, so given the panic we are seeing a lot of short sellers are going to start to get itchy fingers.

It wouldn’t surprise me at all to see the market rebound once the jobs report is out of the way as the market often discounts ahead of a bad report, then rebounds as shorts take their profits.

My point is we don’t want to chase the shorts here. Shorting the market may seem like the smart play right now but keeping our balance between risk and reward is crucial in such volatility.

I think shorting the market makes sense with a limited amount of funds, but not in the hole like this. Wait for the next short cycle high and then consider taking a position.

Keep your cool and remain steady. This is as difficult a market as you will ever see but we have a plan and when it makes sense to do something we will do it.

Jim Rogers once said: “One of the best rules anybody can learn about investing is do nothing, absolutely nothing, unless there is something to do. Most people always have to be playing--- they always have to be doing something.”

We all want to forward our money, but our emotions of fear and greed are our worst enemy, especially when you have no plan, no discipline and you feel like you just want to run away and never be an investor again.

Stay focused on the market and what it is telling us.

Patience neutralizes risk! Protecting our capital in such volatility is our number one priority. Making returns is our second priority. The first priority always trumps the second priority.

Marty Zweig used to preach: “A small loss, when realized, becomes an opportunity for profit elsewhere. It gives you the chance to turn a liability into an asset instead of just sitting there praying your old stock will come back.”

This is wise counsel, whether you have a small or a large loss.

“ You can think more objectively with cash in your stock account than you can if you are worrying about a stock that has lost money for you.” ---William O’Neil
I am very excited about the next bull market. It may not happen this year. It may not happen next year but when it does come it will all be worth it.

It wasn’t a fluke that we got out near the highs ahead of this bear market.

It won’t be a fluke when we catch the next bull market upswing either, if we listen to what the market is telling us.