The market action this morning is something that all participants will remember for years to come. Stocks were halted shortly after the open when they hit the -7% threshold. They reopened 15 minutes later and are now seeing some bounce action but the S&P 500 is still down 5.3% as I write this.
The question for market players is what action to take, if any, in these highly volatile, and unstable, markets. The answer is that it depends on style.
Very short term traders are primarily focused on index plays with the obvious bias toward looking for a quick oversold or reflex bounce. When action is this dramatic the chances of a counter-trend move are very high but there are so many trapped longs that the move may not last long as they look for an escape.
It is important to keep in mind that this is highly correlated action right now. The market will not distinguish between 'good' stocks and 'bad' stocks. They will be sold together as index ETFs and mutual funds are sold.
If you are looking for opportunities focus on sectors like oil, banks, biotechnology, and watch to see if they are looking washed out. There will be some individual stock picking in those groups as the volatility starts to slow.
The goal here should not be to look for the bottom tick but to trade within a bigger downtrend. Even if this market does manage a good sized bounce at this point there is a good chance of more bouts of selling as major reposition takes place.
I have a long shopping list in place but am doing very little so far. One group I'm looking at is gold. While many market players believe gold should be flying in this group, it is under pressure as a 'source of funds'. They are being sold regardless of the bullish case. I took some Gold Resource (GORO) this morning and may nibble others in the group.