Tuesday's Selloff - Wednesday Critical

greece junk bondTuesday experienced the largest one day decline in the markets since February 4th, as the Dow closed down over 200 points. What was even more interesting than this, was that the volume was considerably higher during today's sell off, leading me to believe that indeed the many that have been on the sidelines are more bear than bull at this point.

The big selling day was mostly influenced by the downgrade from Standard & Poor's in regards to Greece's debt from BB+ to "junk" status. The news sent markets down rather quickly as well as gave some strength to gold and Treasuries. Of course, along with the problems in Greece are all the problems Wall Street is experiencing with our banks. Goldman Sachs continues to defend its position against fraud charges and the Senate is still pushing for votes to get the Bank Reform bill passed. However, it was voted against for the second time today...Back to the drawing board.

This was the first big down day we've had in a while and it was accompanied by volume. Close to 10% gains were found in some of the highly leveraged ETFs, which I'm sure is peaking interests at this point. However, I am not fully sold quite yet in a continual drop at this point. Today's sell off was an isolated sell off day, which means a surprise news event sparked the selling. It isn't a dragging economic variable or a factoring fundamental to our economy that will have effect for months. As such, these type of selling days have tendency for quick, strong rebounds. This is what makes Wednesday such a critical trading day, as it should better define today's retreat.

On days like today, I like to open up positions right before close on both sides of the market (bull and bear). I then place very strict stop losses on both of them, as to minimize my losses. Tomorrow, I am expecting another lopsided victory, either for bull or bear. If bulls come out tomorrow, I expect a significant amount of today's losses to be given back. If the bears come out fighting once more, this could spur another strong round of selling and even more volume. I believe it will be either or. One side of my position should strongly outperform the other tomorrow. So we'll see. Other than that, it looks that some force is returning back to markets. Happy Trading.


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