Wednesday, January 16, 2008

Practical Tactical

Regardless of your view re the current market decline - bear or correction, there is a very reliable investment rule of thumb that should not be ignored: Don't sell into an oversold market.

The accompanying chart* of the S&P 500 provides evidence - in the form of momentum and MACD - that the current decline is well into oversold territory. Moreover, it is highly likely that more than a few market traders and commentators will note that the current decline has brought the market down to support levels (previous decline lows).

Investment Strategy Implications

The market appears ripe for a bounce. What also makes a bounce likely is the fact that the epicenter of the decline, the Financials, have begun to exhibit relative strength, despite having everything including the kitchen sink being thrown at the sector.

Perhaps Warren Buffet's words from last Friday should be revisited, particularly the one about profiting from the market's follies.

(Then again Mr. Buffet's advice re market forecasters may apply!)

*click on image to enlarge

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