Where are we heading in this market ?????

All Indices were in retreat from their HIGHS....here is the damage in major indices taking from highs to lows of the day on Friday :

S&P 500 <5.24%>

DOW <5.33%>

Nasdaq <5.4%>

SO...why this SHARP "U" turn...biggest 3 day drop since Feb 09 ?

First ...we were due for an ORDERLY pullback as we were making new highs almost on a daily basis.....there was no real pullback since Oct 19th which took S&P 500 from 1101.36 to 1029.38 a drop of 71.98 points or <6.5%>...but this correction happened over 2 full week...while our current pullback happened in a "flash" in 72 hours...severe & sharp......

Second..... China pulled a "major surprise" by curbing lending by telling banks NOT to give loans for this month.....this was being done to curb runaway growth in GDP & inflation......

Third.....Obama also decided that he will launch a major overhaul of banking system practices where they cannot indulge in "too risky" bets.......

Fourth...Rumour circulated that Ben Bernanke will NOT be approved for 2nd term based on key democrats bad mouthing Ben & saying ..they will NOT vote for him.......

Although markets were NOT in extreme overbought situation @ all...BUT all of the ABOVE took a toll in traders sentiments...traders/hedge funds/institutions had HUGE gains in many stocks so they all ran for exit @ the same time...creating the biggest TUMBLE in almost a year.......the velocity of this correction was EXTREME........

VIX JUMPED 66.13%...a sure sign of extreme PANIC in one week......

So ...lets analyze each one of the above FOUR factors as to its trading bankability :

First .....Indices are deeply oversold as reflected in these closing RSI numbers :

DOW 34.41

S&P 500 36.85

Nasdaq 39.38

These numbers points to a MAJOR rally to start.....

Second.....China is curbing spending to control RUNAWAY growth in GDP of 10.7%....nice problem to have.....so a steady 9% GDP in China is good for world economy...another PLUS for stocks.....

Third.....Obama trying to control banks leverage issues.....in the long run it will help a steady/sane approach in speculation.."too much GREED is NOT good"..another PLUS for stock market....

Fourth...Ben Bernanke will be confirmed based on latest tally & change of heart from politicians ...as they always REACT to the message of the market......MAJOR PLUS for stocks....

Now that all of the above FOUR bad news has been DISCOUNTED...markets CAN go about repairing technical damage which has occurred in all three indices which I monitor closely.....

I expect markets to go back UP to 1130 area then another review of RSI is in order......

Earnings from AAPL will be very good and will give a "major lift" to the market......AAPL reports AH Monday......

Most stocks are "deeply oversold"...so a technical bounce is easily predictable...when majority of stocks slice 50DMA & are close to 200 DMA...it IS time to get aggressive in buying.....it is beginning of November all over AGAIN.......

Here is my $/sector allocation/RSI for my portfolio :

POT 23.04% AG/Potash producer 40.03
ASIA 17.22% Tech/Software 33.44
APWR 12.79%AE/Wind Turbine 27.54
IAG 12.32% Gold Mining 37.42
PALM 10.66% Tech/Smartphone 50.30
SLW 10.25%Silver Reseller 38.42
AUY 7.46% Gold Mining 34.74
TC 6.26% Molybdenum Mining 48.92

As you can see ..I have maintained my entire diversified portfolio since selling Solar........By the way Solar are OVERSOLD big time TSL & SOLF looking very attractive based on German impact......

Entire market is a "screaming BUY".......nobody got poor by buying LOW........

Good luck in your decision to position in this oversold market........

BLOG does NOT give buy or sell.

Saleem