There is no question that we are at a critical juncture in equities right now.
Currently, the S&P 500 is resting on a long term trend line from early 2003, which was the successful bottom test and really the start of this bull market we are currently in.
The meat and potatoes of this chart however is the FEAR model that I have below the chart and the amount of fear that is currently in the market.
It is very possible that we saw a climax low today based upon the massive flight to quality in the bond market. This bond market action was a leading contributor to the very bullish readings in the FEAR model.
While there are never any guarantees, history has given us some very strong rallies after the market relationships as we have now run their course and this is precisely what the FEAR model measures.
There is always the possibility of yet still lower prices, however the technical evidence is screaming to buy this decline with both hands.
We have never had a Bear Market when the Commercial Traders have been so blatantly bullish and the small speculators have been so overwhelmingly bearish. While there is always a first time for everything, the probability of such an event is remote at best.
With all this in mind, we continue to focus on quality stocks that have gotten hammered during this 5 month plus correction. Especially some of the big name financials that have been unmercifully slaughtered simply by association with anything sub-prime.
It is exactly these types of imbalances, that provide incredible buying opportunities and over the long term make incredible profits. It certainly is not without risk however, as nobody really knows for sure what the total carnage will be from this sub-prime fiasco we have before us, however I am willing to take the long term risk that the worst is behind us and some of these lenders can be purchased.
Stocks such as IndyMac (IMB), CountryWide (CCF), Corus Bancshares (CORS) and a very speculative WCI Communities (WCI) which offers a genuine shot at a 10 bagger over the next 2-4 years. I do emphasise that WCI is extremely speculative, but its risk to reward ratio is simply too strong to let pass.
There are also some regional banks that offer some incredible value as well. Stocks such as Alabama National Bancorp (ALAB) have some great potential.