Dow Jones 12216.24 -416.02 4:46 am PST, February 28, 2007 NASDAQ 2407.86 +0.00 For info, visit access.smallcapnetwork.com S & P 500 1399.04 +0.00 Change your subscription status here Russell 2000 792.66 +0.00 VOLUME 07: ISSUE 24 Ouch! Now What? - Some Market Perspective Undoubtedly by now - unless you just got back from a mission to Mars - you've heard the full scoop on what happened to stocks yesterday. Between China's massive market tumble, a major computer glitch with the way the Dow Jones Industrial Average is calculated, and a wave of potentially-problematic economic news, the U.S. market just couldn't take it anymore. Stocks pretty much saw their worst single-session dip since the first few days following the September 11, 2001 tragedy. Ugh.  So, I'm sure like many of you, I've been reading the headlines and collecting my thoughts. The one thing that struck me as I was looking through everything last night...all these news sources are explaining what happened, and most are offering ideas about what this plunge may mean for the near future. Though I'm never at a loss for an opinion, I don't want to offer either of those things just yet. Instead, I'm going to give you something you probably won't get anywhere else.....perspective.  And, in an effort to make this as direct as I could - and perhaps with a nod to David Letterman - today's edition is a 'Top Ten' list....the top ten questions most traders are asking us now.    Top Ten Trader Questions After The February 27th Plunge  In reverse order.....  10. Is this the beginning of a bear market?  I really don't think so. While the corporate growth rate has tapered off, earnings are still solid. And, even the apparently-weakening economy can still support average rates of growth. So, I don't know that stocks deserve to fall a full 20% (or more) from their recent peak - the typical definition of a bear market. I'm not making a firm call though ...anything can and will happen eventually.  9. Is this the beginning of a correction?  The typical definition of a market 'correction' is a decline of 10% or more. Like I said above, I'm not making a market call - at least not yet. So, I'm not going to say this is the beginning of a correction. However, I think it could be. The truth is (ok, my truth) it's still too soon for anyone to say. What happens the rest of this week, and maybe next week too, will ultimately determine if this is going to be a normal correction.  Of course, the bitter irony is that by next week - if the market has another steep decline or two - the corrective move could technically be completed. As of Tuesday's close, the S&P 500 is already down 4.2% from its most recent peak. (Keep in mind though that a correction can be more than 10%...that's just the minimum rule of thumb.)  8. OK, if this ends up merely being a market correction, what should investors or traders be doing while it plays out?  I'd say the first thing to do is define which one you are.  If you're a trader, you might find a nice bearish trade or two in all this ...though I'll remind you (like I said above) we still don't have enough information to really say where stocks are likely to head next. 'Guessing' the next move wouldn't be much more than that - just guessing. Be patient and wait for good entries. If you're an investor, I think a correction is a supreme time to find bargains. Though you're in it for the 'long-haul', I have always felt the war is still won in just a few battles every year. Case in point - yesterday ....nearly two months worth of market gains were wiped away in only a few hours. Of course, those gains could be re-won in just a few hours, without warning, so it seems to me like 'sitting it out' until things look completely safe again may also mean you miss out on some of the biggest gains. If you're a fundamental investor, I think you have to worry more about fundamentals and less about charts (easier said than done).  7. Any possibility Tuesday was a one-day fluke and that we could rebound today?  Yep. Again, I'm not making a market call just yet, but this is a distinct possibility. If so, then the dip is a nice re-entry opportunity.  6. So how are you handling it?  How am I handling it? Not that it's the right thing for you (I lost money on Tuesday too you know), but I'm doing nothing at least until the end of the day today, and maybe not even until the end of the week. Big moves invite big reversals ...sometimes. Other times, they create a snowball effect. Not knowing which is likely to play out now, I don't want to errantly flinch.  However, I can afford to do that - I've got some index put options to help offset my 'long' portfolio. If I didn't have that hedge, I may not be so brave. And no, I still didn't have enough puts to suit me.  5. Why aren't you making a call when everyone else seems to be?  I wasn't kidding above when I said I think it's way too soon for anyone - no matter how smart or reputable they are - to start making market calls. Unfortunately (if you'll let me get up on my soapbox for a moment), it still seems like the media is more interested in featuring a sizzling story first rather than providing relevant and helpful insight. Getting the call right is a distant second priority. Hence, I like to think today's edition is a bit of fresh air. How humble of me.  But to answer the question, I think it all boils down to ego. The guys on TV are usually looking for face time. I'm just trying to make money (for myself and our readers). I'd rather be rich than right. While I know I can't make a penny on the sidelines, I also know I can't lose ground there either. Half the TV analysts are going to be wrong; the other half are going to be right. I'm not into coin tosses, nor do I have anything to prove.  4. What are the bearish signs here?  In short, the size of the drop was the biggie. It was the biggest in years, and on very strong volume. You could make all the arguments you want about China, the delayed pricing for the Dow late in the afternoon, and all sorts of other things. However, none of those are things I'd consider market killers.  From my point of view, it just seemed like investors were looking for a legitimate excuse to take a break, and they found one. It happens. However, after seven months of gains, it's not like one bad day is going to relieve the pressure created by a major cyclical bull trend. Once these things get started, they can persist for several days, if not weeks.  The other bearish concern.....the charts' breakdown. All the indices took a technical drubbing, which has the potential to visually scare others out or away from the market.  (Side note: Had a drop of this magnitude occurred after a semi-prolonged downtrend, we'd be jumping all over it as the bottom. The wrench in the works is how the big selloff actually occurred as the market was running into multi-year highs.)  3. And, what are the bullish signs?  Would you believe the same answer as the bearish signs? The enormous size of the plunge also sets up the possibility of a major rebound. That's not to say it makes sense; that's just a notice that it could indeed happen - big days invite big reversals. That dip may have managed to shake out all the potential sellers, leaving behind only the buyers. In fact, some of the underlying market dynamics (like TRIN, the put/call ratio, the VIX) are actually at levels consistent with short-term market bottoms.  Crazy, ain't it? That's why I still contend it's too early to start making guesses.  2. So if Tuesday's low wasn't a bottom, how will we know when and if we've hit it?  Some of the specific things I'll be looking at if, we don't make an immediate recovery, include the VIX (for a sharp downside reversal), breadth and depth (to see when the A/D line and volume data can't possibly get any worse), and the key levels on charts (which we'll look at in detail later)  But, I think the important part to that question is what to do once you think we're at the bottom. We've said it what seem like a ba-zillion times, so here's ba-zillion and one ....often, the best time to buy stocks is when absolutely nobody else seems to want them. That's usually the capitulation.  I'll also be the first to acknowledge it takes some serious confidence to be a buyer when it seems like nobody else is. However, in my investing career, I've made far more money betting against the crowd - especially when the market is at extreme conditions - than I have by following the crowd.  1. Any other tips to navigate these next few days?  Yeah, one. Have you ever seen the movie 'Wall Street' with Michael Douglas and Charlie Sheen? Though the movie was a little off the mark with the way Wall Street actually works, Douglas' character Gordon Gecko offers this advice to Sheen that I think is spot on. He said "Don't get emotional about stocks. It clouds your judgment."  I know that's like telling the sun not to rise, as everyone is emotional about money - their own in particular. However, I recommend, to the best of your ability, that you put Tuesday and whatever it meant to you out of your head. Focus on what the market is doing. Focus on what the underlying market tone is saying. Just don't let fear, greed, or regret work their way into your head.  Try this...take a deep, slow breath in, then blow it out just as slowly. Now do it five times. You should be less tense, more focused, and level headed....and far better equipped to take on the day.    Epilogue I'll have more thoughts in the very near future. However, the slate is pretty full for newsletter topics over the next few days, so check the blog in case we can't squeeze any new opinions into the e-mailed update. If it's really big news though, we'll make room for it here.  Like I said, it's not as much the event but how the market responds to the event that I find so telling. It might just take a few days to really see what that response is. In the meantime, please stay focused, disciplined, and cool - panic rarely helped anybody.  If there's a burning question you have that wasn't answered here, please feel free to contact us by using the link below, or you can post a message in the 'Comments' section of any blog entry. We review them all daily.      We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Attention Readers! Do You Want To Keep Getting This Newsletter?  OK faithful followers, the clock is ticking. We already mentioned the name of our publication would be changing from the SmallCap Digest to the Small Cap Network Newsletter, and today you can see the new logo is in place.  However, in order to ensure you continue to receive our e-newsletter, you may need to take action ASAP! To try and minimize any problems with receiving the newsletter, we highly recommend at least taking these two actions....  1) 'Whitelist' all email with 'smallcapnetwork.com' or 'smallcapnetwork.com' in the From (or Sender) header.  2) If modifying an existing whitelist entry for the newsletter, replace all occurrences of 'smallcapdigest' with 'smallcapnetwork'. Also, replace 'lyris.smallcanetwork.net' with 'lyris.smallcapnetwork.com'.  For additional help on whitelisting, please see our instructions located here.  For additional assistance getting the newsletter delivered, please write to our webmaster.    Challenger/Gekko Boat Approved For Ski Tourneys Looks like the acquisition of IMAR is turning out to be a good one for Challenger Powerboats (OTCBB: CPWB), as it included the Gekko brand name. Why? One of the Gekko boats - the GTR 22 to be precise - has been approved for tournament use by the overseers of water skiing competitions as well as by the folks who administer 'barefooting' tournaments.  Not this is a cure for cancer or the end to world hunger, but this is actually a pretty big deal. See, there were only two boats approved for use by both sports (barefooting and water skiing). Why? We have to think that kind of flexibility makes the GTR 22 more attractive to the people who may participate in both.  For more, click here.    The Skinny on Fibonacci Lines One of the toughest parts about writing a newsletter is assuming your readers know exactly why you think, feel, or say something. Fact is, that's not always the case. Fortunately we have a pretty active and vocal community out there, so when we use a tool without explaining it, you guys ask good questions.  Here's one of the more recent inquiries about Fibonacci lines I think every single user/reader should review, as we tend to talk about them quite a bit.    Clearly Names Organic Snack Distributor Moving right on down the punchlist to greatness, Clearly Canadian (OTCBB: CCBEF) today announced a distributor for its Glengrove brand of organic foods. The company is Tree of Life, Inc. - one of Canada's leading distributors in the organic food segment. There's an added upside to the new relationship...Tree of Life is specifically targeting mass retailers.  Hmmm, why does that seem familiar? Oh yeah, it's the 'think big' theme we've see Clearly Canadian use as their m.o. since the beginning of the year, when the reinvented company started to practically take over the world (figuratively speaking, of course).  For more on the Glengrove distribution deal, click here. Subscribe Information is power and timely information is profitable. Become informed and profit from Small Cap Network Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the Small Cap Network Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. Receiving the Small Cap Network Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! 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