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What happened yesterday afternoon was all undone today.  Prices returned
to within a fraction of a point from Tuesday's close.  Volume was about
the same, down a bit to +18% above average.  Well, yesterday I did say
the Street could turn on a dime.

I hope I've introduced you to the concept of "selling into strength", as
opposed to the common perception of buying when prices show strength off
of a sell-off.  But how does a typical investor know whether it's time
to buy or sell?

It's all in the speed of reaction.  Prices generally respond to a
sell-off in one of two ways: a sharp "V"-shaped reversal, or a
slow "U"-
shaped rounded bottom.  Reversals are NOT buying opportunities unless
you're a day-trader.  Usually they're just the snap-backs that are
followed by even lower prices, in effect an "upward correction".

Look, we call periods of falling prices "corrections" for good reasons!
When the market gets into a longer term, "secular", trend, there will be
a lot of mis-valuations in the market.  "Corrections" are necessary to
correct those.  That won't be done in a short sharp reversal.  When we
get a reversal we need to restrain our emotions.  (Think about it, that
much could be said exactly the same about market highs or lows!)  Sell
into the strength, if that helps us get out of losers we should have
sold long ago.  But otherwise stand aside.  It ain't over yet.  The
other side of this coin is the "buy on the dips" idea that has dominated
recent bullish periods.

What we want to see as investors looking for growth is a longer, slower
change in direction, the rounded bottom.  That demonstrates more
consideration.  It creates what technicians call a "base".  It gives
time for all the valuations to be readjusted.  That's when we ought to
be thinking of participating.

Sometimes a reversal gets a reasonable rebound, but then prices return
to the previous bottom and rebound again, a "W" shape, the famous
"double bottom".  In effect, considering the entire formation, we have
another longer term formation.  It's not as predictable, I'd rather see
the rounded bottom, but it can serve the same corrective function.

It's not really that hard to know when a significant correction is over.
It's when the action has finally captured investors attention, when the
psychology and emotions have changed, when investors give up being
impatient for the correction to get over with so prices can go back to
going up.  And insignificant corrections aren't things we want to cause
changes to our portfolio or strategies.

 Price    Vola-    Momen-   Volume   Oscil-   Summ.
 Change   tility   tum               lator    Index
 -__+     -__+     -__+     -__+     -__+     -__+

 __|_     __>_     __     _|__     _<__     10/14
 __>_     __>_     ___     _>__     _<__     10/17
 _>__     __|_     __     >___     _<__     10/18
 ___>     __|_     _     _>__     _<__     10/19
 |___     __|_     _|__     __>_     _|__     _<__     10/20

Timing Signals:  I don't use or recommend timing signals, but they're
fun to watch.  If I did though, well, I might use something like this.
(Be warned!!  It tends to whipsaw around signal points!)

Last Signal: SELL       Date:  10/04/05 S&P:    1214
Winner or Loser:  Loser                 By:     -13

See my market tracking charts for '03-'04 and my investment strategy
study at my website(s):
http://www.xprt.net/~pgrogers/Pers.html
http://www.geocities.com/paulgrogers/Pers.html




Paul Rogers, paulgrogers{at}yahoo.com                       -o)
http://www.angelfire.com/or/paulrogers                   /\\
Rogers' Second Law: Everything you do communicates.     _\_V

... Custer had it coming
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