To OTC Journal Members: 
 

500 Is the New 50

October 2008- here's an amazing statistic. During the month of October 2008 there have been 16 trading days with DOW swings of over 500 points during the course of the trading session. Normally, there are no 500 point swings any point during the course of one month, or even one year. 500 is the new 50 on the DOW.

So- what does this say about the market? Good question, and I'm not sure I know the answer. I do know it means there is a lot of forced, irrational trading going. It means market participants are absolutely petrified- and I don't mean investors are simply afraid the market is going lower. I would say the market was about 80% afraid of lower levels. There's about 20% fear the market will go higher, and the train will leave without them.

After Friday's action, market participants are now about 70% afraid of the move south, and 30% afraid to miss a move North. On Thursday night, International markets world wide were simply a blood bath- the phrase "blood bath" has become a cliché as it applies to the stock market.

Friday morning all the futures were limit down prior to the open. The media was absolutely buzzing with anticipation. Fund managers with cash on the sidelines were on the edge of their seats, hoping for the biggest down day in history- the big "Whoosh" everyone has been looking for.

It's the market's job to confound all participants at all time. There are so many investors looking for this big whoosh that I don't think it's going to happen. I believe the big whoosh is more of a process we are in the middle of vs. some huge single down day that finally blows everyone's brains out for good.

The DOW ended up giving up 312.3, and the S&P succumbed to the tune of 31.34. The worst levels of the day were experienced in the first hour, and the market came back from there. All in all, rather dissatisfying for those looking for the "big whoosh".

Out of Friday, I came up with an idea I thought you traders might find valuable- check it out:
 

The Basic Materials Sector In the Spotlight

Friday's move from my 80/20 fear to greed ratio to 70/30 fear to greed was sparked by the rebound when Friday's market didn't collapse into oblivion. In fact, one sector making a heck of a stand was basic materials. The Basic Materials sector is divided into a number of categories- Agricultural, Chemicals, all the Oil and Gas sectors, Mining, etc. If you dropped what they make on your foot, it would hurt.

Here's a couple of hourly charts worth looking at from Friday's action. Let's start by looking at Potash (NYSE: POT), the giant fertilizer company. This stock is only down from a 2008 high of $240. The stock was red hot earlier in the year when the market assumed that 1.3 billion Chinese and 1 billion citizens of India needed to eat. Apparently, based on the way the market has treated this stock, those people have all stopped eating.

I digress- here's the point. Look at the performance of this stock on a one hour chart from Friday. It closed just a bit under $70 on Thursday. Friday morning, within the first two hours of trading, the market pegged this thing at $56- a full 14 point drop.

If you had the courage to pounce on the stock within an hour of the open, you could have ridden the stock back up a full 15 points in two hours. It ended up closing at about Thursday's close, which is worth noting against a market that was still down about 300.

Mosaic (NYSE: MOS) is another darling of the 2008 commodities bubble. The company makes phosphate and potash- two of the key ingredients in the supply of fertilizer. This stock cleared $160 earlier this year. Going long early Friday would have yielded a quick $7 point gain in about 3 hours. On $23 stock, that's a huge gain in one day without the benefit of an offer being tendered for the entire company.

And, finally, if you don't want to ferret out the individual winners, you can always go ETF. Here's a chart of Friday's hour by hour action in the XLE- that's a basket of energy stocks.

As you can see, Friday the index did give some ground. It closed Thursday over $46- made a low of $41.50 on Friday, then hits its stride by rebounding to $46.50- there was a 5 point swing it that ETF, which is an unheard of move.

So, here's the new micro picture for today's market. The DOW swings 500 points in a day regularly. If you're expecting some huge big sell down day when all stocks get thrown out the window, you might be disappointed. We're already in the middle of it. Those days have become great buying opportunities if you can catch the swing correctly. 

If you wake up in the morning, and the whole world is limit down, consider making the contrarian move and going long. These basic materials stocks look great.

If you're looking for the macro picture and want to find clues about the market finding some sort of bottom, look at these materials stock. They are under accumulation by the big money, and when they get back in the game in full force, I would be willing to bet the basic materials will be a leading group. 

Amazingly enough, the action in this group is telling us people world wide are still eating, burning fossil fuels, and building stuff. I know- hard to believe.

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