Stock market meltdown, are we in for a repeat?

We’ve already heard comparisons in terms of the fear, panic, confusion, and volatility of May 6, 2010 to the recent meltdown and from the look of things
the situation we are in now is not much different as in May 2008. We had a good
year in 2007 where most stock markets were hitting new highs plus the property
markets were doing the same.

Well...you can call this a "wake-up call" for us to think carefully about the
future directions for our investment and if this is not handled right, what we
have now will be wiped out pretty soon. Or we can take a step backward and pause
and think thru what is happening and take corrective steps to protect our assets.
Esp with the problems in Europe and whether it will spread wider? And if that
happened....what is the likely impact for us? Will inflation...or worst deflation
hit us. What will be the result?

Looking at the US stock market now....it is still the leading market and it will
still be so in the immediate future since Euro stock markets won't be in any
position to take the lead while the Chinese stock market is also showing sign of
tiredness with so many IPOs sucking up all the excessive cash all around.

With what happened last week esp on Thursday, the market is very choppy even in Friday trading.

First, a look at the daily S&P 500 chart of the run-up then crash. The key level this time was 1,150, though we had a mini pre-crash before sellers broke through that level.

After buyers lost the 1,150 support, it created a violent positive feedback loop with bulls taking stop-losses (exiting/selling) and bears now short-selling… combined with what they’re calling a computer glitch (similar to the portfolio insurance program selling of 1987) and you get another market crash that stunned the public.

Now, we are in the digestion phase which is giving us violent swings as price winds down to find balance again.

This is not an environment for new traders to be rushing out to 3x leveraged funds to try to make a fortune in the volatility – it’s a time for capital preservation and safety as the professionals try to make sense of what’s happened, whether it was an isolated one-day event, or whether this may be the start of something larger.

If the 1987 crash pattern repeats, we could see a nice rally… but keep in mind that the “Crash” scenario took over after we broke down through 1,150… so we’re not that far from that level now (or by yesterday’s close).

Stay safe, trade conservatively, and don’t get trapped on the wrong side of a volatile move.