February 22nd Market Recap – Libya Sparks Massive Profit Taking Session

by BLAIN on FEBRUARY 22, 2011

Fueled by the turmoil in Libya, the market today plummeted on heavy volume. Oil shot up and overall it was a mess as the market consistently made lower lows throughout the day. The S&P 500 shed 2.05% and the NASDAQ lost 2.74%.

Now while many investors will look to Libya as the primary source of the sell off, there are some key points that should not be forgotten:

• The market was way over extended technically.
• Sentimentrader today reported that small options traders bought more speculative call options contracts last week than any other week in at least 11 years.
• We were nearing 2007 highs.
• We were on a record streak of trading above the 50 day moving average.
• Insert other technical or sentiment reading  or irrational market behavior reading.

The list goes on and on…  Bottom line is that the Libya chaos could have been a catalyst for what turned into a massive profit taking session.

For me personally I was knocked back into 100% cash within the first hour of trading which is where I will stay for now. Due to my workload running my websites I cannot day trade anymore, but for those active investors involved today, the action and opportunities were definitely present for some quick money.

Looking ahead, no one knows what the hell will happen but I always like to be cautious. While moving to 100% cash this quickly can be considered an extreme response, it is how I naturally run my portfolio as a momentum CANSLIM investor with tight stops, profit taking, etc. At the least it is not a bad idea to consider getting off any margin, locking in some profits, and/or tightening stops. I will start moving back long again if we can close back above 2808 (today’s intraday high) on decent volume.

Market indices are below. On my February 14th Market Recap I stated that the NASDAQ faced a  “risk of a reversal at this key price area of 2850 – 2900″. The market peaked just above 2840 so I guess I was not off by much.

Stay frosty out there  .

Trend Table

Trend	Nasdaq	S&P 500	Russell 2000
Long-Term	Up	Up	Up
Intermediate	Up	Up	Up
Short-term	(-) Down	(-) Down	(-) Down

(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend

*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively