Strategy

What happened? Why the sell off?

The fact is that more companies are reporting many more earnings surprises than upsets. Not quite as many as the same time last year, but that's largely due to the housing market's upset and the impact on construction, supply and financial companies.

Some people want to call this a double top formation. That's fancy technical speak for saying that the market tried and failed to rise twice, suggesting amajor retreat in the near future.

I disagree. This is October - it tends to be a sell-off period as funds lock in gains.
More importantly, Friday was a technical issue - once the markets dropped to a certain point, technical trading took over and a major sell off occurred.

Both of these mean that a rebound will happen in the next few weeks. Especially as more positive earnings releases come in.

But recessionary fears should not be ignored. Both CAT and Schlumberger confirmed a major US slowdown. It's in the bag, as they say.

But those companies also said that global growth continues to be strong.

So lets consider the situation if the US enters a recession.
1. The whole world tanks very soon after
2. The world tanks a few quarters later
3. The world shrugs it off.

Only the 1st scenario would affect our investing moves. And since I believe that the rest of the world can ignore the US recession, I think we are fine. Yes, the US market will be very volatile as the recession takes hold, but we can manage well if we continue to hold onto a Sell/STOP strategy where we lock in our gains and limit our losses.