Do Not Discount Market Fall As A Glitch!

May 06, 2010 7:41 PM ET
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What a wild day on the market!  The Dow dropped 700 points in a matter of 15 minutes before coming back 600 points from the day's low to close.  Take a look at this chart (click to enlarge):

This is an intraday chart on the Dow for today.  At about 2:30pm ET, the Dow was at around 10630.  15 minutes later, at about 2:45pm, the Dow plunged under 9900!!  Then, it did a sharp reversal to close above 10,520.  The media is going crazy with stories about a trading glitch.  But, even before the sharp fall happened, the market was sliding with increasing momentum.  If we take out the sharp swing and the noises thereafter, the curve is actually very smooth.  Take a look at this chart (click to enlarge):

See the red curve that I drew from just before the sharp drop to the close?  See how smooth it is? 

Now, why am I showing this?  What am I trying to demonstrate?  What I am showing is that whether there was a trading glitch or not, this move today, where the market closed, was real!  For the past 2 weeks, I have been saying in my blogs that I think a good theme right now is "long gold and short the market".  There are simply just too many uncertainties.  On Tuesday, I outlined those problems again, namely "problems in Europe, lawsuits against GS, financial reform, oil spill...etc," not to mention the rising dollar (pressure on commodity sectors) and the Austrailian tax on mining.

Major market indices all lost more than 3% today.  What's disturbing is that even when the market bounced back today, The Dow closed below its January high, which was at about 10,730.  So, I would not discount the fall today.  The market is trying to tell us something.  Tomorrow, we'll get the latest jobs data, which could bring the market some bounces if the data are strong.  But, the momentum is still on the downside.  If the jobs report comes in weak, we can see some more "panic" selling.  So be very careful!

Good night and HappyTrading! ™

Disclosure: no positions

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