There has been huge selling in Japan overnight as the damage from Friday's earthquake becomes more apparent and the danger of further problems with its nuclear power plants grows. At one point the Japanese Nikkei futures were down over 16%. The DOW futures are down over 300 points and the S&P 500 is trading down 33 points as I write this. These are big gap downs and just about everything is falling too, including gold and commodities.
Interestingly solar stocks are trading up at the moment as people look for alternative energy stocks to bid on. I guess they think people are going to be so scared of nuclear energy now that governments will invest in other energy sources. The GEX alternative energy ETF is up over 4% in pre-market action and is one of the few ETF's actually trading up. Disclosure - long this one. Sometimes you are lucky.
Treasury bonds are up too. And so is the US dollar.
I hate seeing what has happened in Japan and it's sad to know that many people are losing money on the market open today. As an investor though we have to keep a level head to what is going on and just use cold logic. Besides lives are more important than money.
The stock market has been in a correction now since the middle of February, even though most people have been in denial of this. Many of the emails I have gotten from people who read my stuff have been from people demanding more stock picks. I opened up the WSW Power Investor Service at the beginning of the year and said that my plan was to not do a whole lot until a correction came - because it is corrections that bring buying opportunities in the stock market - and waiting for good entry points is how you make money in the market.
Most people though simply cannot wait for such buy points in order to buy stocks. They think making money in the stock market is being fed stock picks and as a result they seek them out from anywhere and if you tell them to be cautious some of them just curse at you. This is one reason I keep the Power Investor Service closed except for a few times a year.
At the start of the year I like to open it up, because many people get into a mode of wanting to truly educate themselves and become better investors and they think about that more since it is a New Year coming. I have designed the service to be educational and often it is these people who sign up at the start of the year who really benefit from it, because they really go through the Stock Market Mastery course. I've learned that it is best after that though to be very careful when I let new people into it, because so many people do not have the discipline to wait a few weeks for entry points in stocks and treat the stock market like a casino in which they think the way to play the market is to chase after stock picks no matter what.
This is what makes markets peak out and go into corrections - and then into panic bottoms - over and over again.
It is the people who buy stocks based on pure emotion and little thought who sell into panic near bottoms.
Most people learn nothing!
And this will never change.
You do not make money in the stock market by chasing stock picks, but by knowing how to invest and trade - and to know when to buy at the right time. You don't do it by being a herd investor, but understanding how the herd works and taking advantage. Today the herd is selling.
Like I said the market has been in a correction for a month now and since then I've been saying to hold off on buying and to let the correction play out - because it will bring a good buying opportunity.
So we have to put the action this morning into context with the action of the stock market and not react emotionally to it.
The stock market broke through support on Thursday and on the charts it was clear that it was starting another leg down for its correction.
Yesterday the stock market was down hard in the morning, but the put/call ratio was down too and the ratio of sell to buy orders on the Nasdaq and NYSE was fairly subdued. This means that even though the market was down there was very little fear or panic among investors. The selling was orderly.
Corrections normally end in a wave of panic selling so this meant that yesterday was not going to be the bottom no matter what happened today.
But we are at a point now where panic selling is likely to hit the market.
I'm doubtful that the market will bottom off of the open. I think it most likely that we'll see the market fall more from this level and then make a bottom - but the faster it drops from here the quicker the panic will come in the market and bring a bottom.
I expect to be doing some buying soon and to be putting out a lot of recommendations in the Power Investor Service. We may put together a special report or presentation for everyone in the next 48-72 hours.
These are the times when you must pay attention to the stock market and they only come two or three times a year.