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So, what we need to do is get excited about big up days AND big down days for trading, but not get caught up in the hype from overreactions. That means not buying XYZ after it has gained 10 points in two days and not thinking the world is ending when the averages take a hit for the day (of course several weeks at a time is a different story!) Look at over reaction down days as a possible buying opportunity. Let's take a look at say a chip sector downgrade, say on a Wednesday, by perhaps a firm like Salomon's.

The market needed to take a breather after a few good days (not recently), and traders got a bit nervous over a few tech companies warning about earnings.

The market has been styled a perfect entity, where buyers and sellers even things out. Well to a more than one extent that is in all conscience true. But, once it "evens things out" it often overshoots the marks on both sides of the ledger. For instance let's say XYZ makes some big noise with an upcoming deal they are getting. Soon the market is going crazy consumerism it up and XYZ is flying. Was the news really hot enough for XYZ to gain 10 points in two days, or was it simply a big momentum wave that got pneumatic up and everyone wanted "in" to they missed the boat? We suggest it was the latter.

On the other suppose you see a stock taken down over $5 a share simply seeing that they stated their revenues wouldn't be "up to par". Is that valid? We don't think so. Both of these examples are "over reactions" and once the hype and rush is over, THEN the market equalizes things out. For example, suppose the second stock did not show less sales or revenues, but simply had to deliver them at a time where they couldn't be accounted for during this quarter. So, for a "timing" issue a stock loses 5 dollars in a day. That is nuts.

So why do we provoke this up? Well naturally we think that in specific issues a stock might make for a great longer term opportunity. (Not all smackdowns are buy opportunities, if the stock had really smutty it on losing sales or something, that is a different story.) And in the case of XYZ, there was a short sale made in Heaven, once the initial hysteria was over. But maybe more importantly we need to know when WE should be in a frenzy over something.

Suppose a Friday is the day in the foreground a holiday weekend and we do very well. Then Monday when everyone is at the tidewater we still have a pretty good day. Yet when the selling hits on Wed. we get "talking heads" screaming randomly how the market is unsteady and it may be headed down. They are the same guys screaming we should be hire purchase up everything just two days earlier! See the point? Too much upside Friday and Monday, followed by too much downside Wednesday.

So, what we need to do is get excited haphazardly big up days AND big down days for trading, but not get fixed up in the hype from overreactions. We need to profit from them. That means not purchasing power XYZ subsequent to it has gained 10 points in two days and not thinking the world is ending when the averages take a hit for the day (of course several weeks at a time is a different story!) Look at over reaction down days as a possible sale opportunity. How do you know if it is just over reaction or a real panic sell? Let's take a look at say a chip sector downgrade, say on a Wednesday, by perhaps a firm like Salomon's.

The market needed to take a halt past a few good days (not recently), and traders got a bit nervous over a few tech companies warning encircling earnings. Then comes Salomon's downgrade. So they sell off the boodle hard. An over reaction? Well the downgrade was seeing as how they were "too expensive" and valuation downgrades are generally short lived creatures. So what you need to do when something like that happens is watch the pleasant time over the next couple days. If they are heading back up, the downgrade was a gift and even if you missed the first few dollars of the move up again, you are still getting in cheaper than they would have been forward the downgrade.

The guts line is this: the market overshoots just most everything. If you base some of your trades on those extremes by shorting the frenzies and purchasing power the smackdowns, you will find that very often you have made a good trade. Just don't get transfixed up in the frenzy yourself!

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