What do we know?

We know....
1. We are in a correction (don't call bottoms, test the lows)
2. We are testing the lows
3. Fear is EXTREME to say the least as measured by sentiment indicators..... and as measured by preventive action taken by me Tuesday to move money out of money market funds for fear the financial system is about to collapse! I have certainly never acted like that before! So take that as a sign of capitulation if you wish. Hey, maybe it is a rash move but in an uninsured account that is 20+% collateralized by mortgage debt and in CFC commercial paper.... no thank you.

So except for my actions which I just told you about everyone in the world can see these things, everyone knows "this is where bottoms are formed." You have probably heard that 100 times already. Everyone can see on the chart the way the correction in the $SPX played out in March.... the candle that put in the test low/double bottom and expects the same thing to happen Wednesday due to the factors above. That is easy to see and something you should be familiar with. Equal lows are very simple. So I just want to point out in the $RUT chart how a test can happen without precisely equal lows. Unlike the $SPX, the $RUT which started this correction showing relative weakness actually showed relative strength in the bounce last week. Therefore it is not yet pushing the extreme low as of yet. I have drawn in a line off the March low which if it does prove to be support DOES qualify as a test of the low to me. So if we do get early weakness and then a reversal I will not be harping about the $RUT needing to test its low. If the $SPX was in the same position, it would be just as valid there. This is actually a very commonplace setup where an outlier is left on the chart so always check for that other support level. The $RUT does not have to go all the way to that low if it does not want to. In fact, if it wanted to rise right from here that would be good enough for me as well.

Tuesday was a good example of why it is so important to me NOT to call bottoms or think the market HAS to bottom because of sentiment indicators but to just assume the correction will continue until it does not which will be shown to us clearly in price. How many people bought the last couple of days for those reasons? Now they are experiencing failed breakouts and continued downtrends breaking to new lows and severe regret at their emotional actions. To me it is just a fruitless exercise. These things are reasons to prepare for what you will do when the reversal comes, be it exiting bearish plays or entering bullish ones but leaving the creation of the reversal to the market itself keeps you out of the grinder against the trend and emotionally ready to act when the time comes. Money you don't lose stupidly is money you don't have to make back! Once the reversal comes everyone will say they called the low, what they won't tell you is they bought early got stopped out and missed the reversal rally. If we don't bounce here and plunge to the next levels of support such as the 200 day on the DJIA there will also be reasons they knew it would not be the low and stayed short. Amazing how everyone is always right.

So the assumption continues to be the correction will continue until it doesn't. Have one eye open for the potential of the classic reversal here.

Enough of this rambling? You get the point... go with the flow. It is very important to me as from the failed attempts at trading I have witnessed from friends, the cause is always giving up (breaking my rule #2) after letting losers run (breaking rule #1). Being out of the way of declines is much more important to me than even profiting off of them.... and there is certianly no way to profit from a decline before you know how to get and stay out of the way in the first place. Ok, Ok.... I'll get to some picks and trade management next. Feel free to chime in and share your thoughts or ask me to look at something.