The market had another bloody day yesterday (11/20/08).  Dow, S&P and Nasdaq all created and closed at new year lows. SPY dropped to 75.05 at a low point, which is right on the target and closed at 75.45. The market trading volume was huge. VIX spiked during the day and closed at 80.86. We saw some real panic sells yesterday. All the conditions are met for a technical bounce from a deep sell off in the recent market. We could see a strong bounce today; but once again, it would be suspicious until it is proven. 

Almost all sectors were sold off yesterday. Among the worst are still basic materials, energy, base metal.  Financials remain one of the worst sectors.

We are still facing a very dangerous market.  S&P and SPY broke through 10/2002 lows. From the chart, we should have a rebound wave 3(5)-4. How long and how far it can go, we don’t know. It could be a short lifted bounce.  

Even today we may see some technical rebound; it does not mean the market has bottomed. We need to wait for a confirmation from the market, and to watch whether the market has a follow-through, before we jump into the market.

The current strategy is still staying outside the market. Be cautious. But be prepared.

Below are my recommendations. For DT, don’t jump in at the market open. Wait until the gap-up is filled, and then trade some strong stocks or index ETFs, such as QQQQ, QLD, SSO, IWM, etc. But don’t hold any position overnight. Sell all your positions before the end of today’s session.

Take Care.