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Fear Quotient Spread Fast


Only question is when to pull the trigger.

Today the market was spooked by a number of uncertainties. For more than a year, there's really been only a small pot of funds earmarked for investment. I often refer to this pot as "fast" or "hot" money. The crowd of hedge funds and high-net worth investors that were able to move from one investment class to another are inflicting their will on an indecisive market.

Now, however, it's clear there's a psychological hole in that pot of funds. The hole is small, but it's growing by leaps and bounds. Each tick lower has a negative impact that spreads exponentially. Fence-sitters are heading for the hills, while the masses are digging in even deeper.

Near term, there could be relief -- if tomorrow's job report is better than expected -- but there has to be a more definitive catalyst. I suspect near term pressure could be eased with resolutions of Freddie's (FRE), Fannie's (FNM) and Lehman's (LEH) difficulties. I also believe if Congress were to come back to work and show the American public it's ready to solve problems -- rather than whining and pointing fingers -- the market would firm up.

Technically, the market is facing big-time tests on the downside. (Just a couple of days ago, the large equity indices were on the cusp of significant breakouts.) For the Dow, we see some support at 11,200, then its back to 10,800, which MUST hold. On the upside, 11,800 is still the magical breakout point.

I think the market is oversold - but that doesn't mean it can't move lower. I'm not sure the market will be able to heal itself. If there's no outside intervention, then recovery could be a bumpy road.

The great news is: Everything was getting hammered. Everything was somewhat out of control. Companies that have been executing, companies that have offered strong guidance, companies that are taking market share and those that have pricing power are all still attractive. The more they come down, the better they look. The only question is when to pull the trigger, which means keeping your head up and being prepared.

Click to enlarge

I didn't sense textbook capitulation, despite the magnitude of the selloff. But, needless to say, the fear quotient was climbing fast today.

Hang in there. Don't just stew or make the wrong moves.
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No positions in stocks mentioned.
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