Correction, or Worse?

Good day Triad Traders. Today we are seeing what may, or may not be a correction in the markets. The Dow fell by 400 points today which was up from an intra-day low of over 546 points, the worst day since the first trading day after 9/11. This pullback has been mentioned by the talking heads for some time and the Bearish action in the Chinese markets, along with Bearish Durable Goods info was the catalyst to send the markets tumbling.

You may remember at our meeting I mentioned, "you take a stairway to the top, but you jump out the window." Basically, when a selloff like this occurs, it could be good, or it could be bad. We have to look at the charts to give us some idea what is happening. Let's look at the 5-Year Dow:

(Click on the picture to enlarge, use the browser "back" button to return to the blog.)

You'll notice that the index broke out of a pretty good Ascending Channel to create two new ones. You'll also notice that the newest channel is much shallower than the last, indicating the market may be running out of steam.

Now let's take a much closer, and shorter term look at the Dow:
WOW, that is some leap, eh?

So what does this all mean? Well, it could mean tremendous opportunities have presented themselves to us. Remember yesterday I mentioned that a stock does not necessarily reflect the strength of a company. There were a lot of good companies that got hammered today because "those boats sank with the outgoing tide." Now, I am not suggesting that this downturn is a "one and done" day. It could be the start of a correction which means more downside. It could also mean the start of a Bearish Market. As Traders, we don't care because we can make money in ANY market conditions.

The NASDAQ had quite a fall today too. Let's look at the charts, first the 5-Year:As you can see, the index was very close to the top of a major Ascending Channel and has now begun to fall. How far and how fast remains to be seen, but look at what today's action did to the previous trend:If the index drops below $2,400, we are talking a potential trend reversal. Of course, we need to see the index make a lower high and fall off to be sure, but it has the makings of a potential reversal. The $COMPQ also broke two MA's today, the 30 Day and the 100 Day. If it breaks the 200 Day, watch out!

Now, as mentioned before, there may be some GOLDEN buying opportunities coming up as some of my favorite stocks got popped today, so I may be looking for a move to their support lines, then bounces to move into some poistions. I'll give you some names, but I'll leave the charting up to you. BHP, CLF, EXP, FCX, NAVZ, TDW...(these are NOT recommendations) to name a few.

By the way, if you are looking for a way to play the Bearish side of the market but are afraid of shorting or using options, you can consider the QID, which is Bearish ETF for the NASDAQ.

Happy Trading!