The reversal yesterday on the Dow was almost 900 points peak to trough. Volume was higher on the rally off the low and thus showed some strength on the move. Putting yesterday’s move in perspective can be important short term to how you play positions. The sentiment is at the worst levels ever along with just plain ‘stinking thinking’. Most of the general consensus yesterday was just another bounce off the bottom that will sell off again. My own thoughts were, what is the catalyst? Reviewing this overnight and reading some of the tea leaves left me wandering if this could be an intermediate bottom with a nice move higher. In fact maybe this is the move I was looking for off the last test of the lows on October 28th? I am not saying it is, but then again it is worth watching and playing if it is.

Yesterday intraday I took a position in DIA off the bounce as a short term play. My initial target is $91.73 and if this gains momentum it would be $96.45 and then $101. I am not talking about this as if I made a great decision, but from the point of doubt that I and many investors have towards this market environment. The internal data as well and sentiment all show readings that generally mean we are going to move higher, i.e. a near reversal off the bottom. The challenge is the negative thinking has taken over to the point you can almost hear the words, “it’s different this time.” Those are the famous words that are uttered at markets top and bottoms. This could be the turning point and I have to change my thinking back towards what I know and not what I feel. Emotions are what cause investors to chase tops and sell bottoms. This is worth watching and playing with discipline short term. If it doesn’t pan out – no harm, no foul.



The October 2002 lows had the same feel to them emotionally and the bounce did build over a period of time. While I don’t believe this is the end of the bear cycle. It could be a move off the lows that is definitely worth playing. The example above shows a move worth taking advantage of if it plays out. The trading range is still in play and the opportunity for a play within the range started yesterday. How it plays out we will know soon enough. The key is to approach any opportunity with a disciplined entry point, exit point (stop) and target. I have all three on DIA and I was willing to play. There will be other moves here as the leaders on the downside will bounce. Energy, regional banks, steel, agriculture and biotech all held up the best on the selling and yesterday showed nice moves higher. Worth digging into short term.

Bonus Thought: An energy stock worth watching today is Sunoco (SUN). The refiner broke out of the six week base yesterday. It looks bullish short term. Looking to see if the 50 day offers any resistance and a pullback for a better entry point. The move could be near the $45 mark if it gains momentum.

Jim Farrish, founder and editor of Melbourne, Florida-based SectorExchange.com, writes regularly about sectors and speaks widely about investing and money management.