Whenever you have extreme moves in the markets, emotions run high.  You can see that clearly in a quick run through the blogosphere.  When the overseas markets began selling off and our own US futures sold off in tandem, the web was a buzzin.  Trash talking ensued from those who have been short, calls for a crash were common.  Would the Dow hit 10,000 before it’s all said and done?  The emails came in wondering what the heck to do.

It’s the kind of thing you see at bottoms.  Throw in the fact that the major indices were flashing oversold signals and the VIX was sure to spike at the open and you had a perfect recipe for a big flush out of sellers and resulting capitulation.  However, I have to admit I was concerned this morning about a potential crash.  Hank Paulson was was reiterating that the economy was strong blah blah blah.  Was this it?  Where was the Fed.  With the Dow taking out 12,000, the Nasdaq taking out 2300 and S&P 1300 the only way to avoid a meltdown today was massive Fed action.  .. and there it came.  Why the Fed has been hinting at a big cut and waited so long is the billion dollar question but 75 bp cut and the Fed saves the day.  A reactionary rather than a proactive cut, but futures took off ..
but only briefly.  We were right back to where we started.  Dow down over 400, Nasdaq 70, S&P 65. 

Uh oh, didn’t work this time.  The biggest cut in decades ahead of next week’s meeting and the market isn’t impressed.  The crash scenario is still alive and well but it’s no time to panic.  I emailed members last night and ran through some scenarios and what I planned to do but most of all it served as a reminder to avoid panic and remain cool headed if you have long positions.  It is critical to give the market 30 minutes to one hour to sort itself out at the open.  If you did that you were in good shape and avoided selling positions at what might have been the lows.

Just as the Volatility Index spiked to levels not seen since the low of last August (see below), buyers stepped in right from the open and pushed the indices well off their lows creating the potential for a capitulation day.  The gains of the day held up very well and we still closed near the highs of the day, but the lack of a stampede of buying into the close casts a shadow over today’s move.  We are not out of the woods yet and you should not be getting aggressive on the long side.  Institutions did not step up and buy into the close.

Today was a good start though.  I’d like to see a retrace of today’s move with light selling volume followed by some kind of confirmation day.  Then a big 2% move or more with volume higher than the day before.  Until that happens, cash remains the best place to be.   Remember that we’re just now getting into the bulk of earnings and as was seen with Apple (AAPL) after the bell today it’s going to be a mine field this quarter. 

There currently is no leadership in this market and good trade setups on the long side are few and far in between.  Wait for new quality bases to form and new leadership to emerge.  There will be plenty of time to profit.  Patience. 

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day January 22nd 2008

Nasdaq: DOWN 2.04 today with volume 37% ABOVE average
Nasdaq ETF (QQQQ) DOWN 2.58%, volume 81% ABOVE average
Dow: DOWN 1.06%, with volume 70% ABOVE the average
Dow ETF (DIA): DOWN 1.128%, with volume 62% ABOVE the average
S&P ETF (SPY): DOWN 1.01%,  with volume 95% ABOVE the average
Russell Small Cap ETF (IWM): DOWN .71%, with volume 57% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks didn’t do particularly well but outperformed the tech heavy Nasdaq.  Today’s rally was all about laggards recovering from extreme oversold conditions.

Summary:

* Decliners led Advancers 186 to 72
* Advancers were up an average of 2.4% today, with volume 62% ABOVE average
* Decliners were down an average of 3.25% with volume 58% above the average
* The total SI Leading Stocks Index was DOWN 1.67% today with volume 59% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Agriculture, Gold Miners, Bonds, Gold
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Broadband, Global Energy, Utilities, Aerospace/Defense

* Today’s Market Moving Industries/Sectors (UP):
Homebuilders, Retail, Real Estate

* Today’s Market Moving Industries/Sectors (DOWN):
Nuclear Energy, Software, Biotech, Broadband, Heath Care Providers, Health Care

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  I’m exhausted tonight so won’t highlight a stock of day today.. There were only two leading stocks above both moving averages and moving with volume today.  Check ’em out  —–

Meridian Bioscience (VIVO) and Yamana Gold (AUY).  I’ll be considering both personally for a purchase soon.