Analysis of the markets is much like being a detective.
You see a pattern that strikes a cord and you go to your little black
book of patterns you keep and get some answers.
The volatility that we experienced today is indicative of trying to hammer out a point of stabilizing prices in order to stage at the very least a short term rally of 38% to 50% of the decline that was just before.
This pattern however does come with a stipulation and that is, the low of today must not be violated and if Tuesday can stage a sharp rally on top of that then the odds increase even more that a substantial move to the upside is upon us.
But, we get ahead of ourselves here. The first item of business will be the ability of the market to hold the lows of today.
Conservative traders should remain cautious here until we get more confirmation that some type of low has been put into place.
Aggressive traders should begin the process of picking up some battered issues as I began this process today. I am not advocating jumping in with both feet, but a bit of bottom fishing here while aggressive could prove very profitable.
Aggressive traders should not have their trading accounts any higher than 25% short term equities and we can always increase those levels as the market goes our way.
No question, things are looking up, but we are not out of the woods yet and if we do get some type of rally in here it will be the quality of the rally that may dictate the future for our core equity holdings that have been in place since late 2003.