Securities Research Services

Tuesday, February 06, 2007

Time Correction

One word only be used to describe yesterday's session: flat. That word packs a punch though if you consider the fact that the broad market has continued to drift higher over the past few weeks and the tech sector has been correcting sideways.

There are two ways that a market can correct after making gains. It can pull back on profit taking, which is a price correction, or it can trade sideways, which is a time correction. Time corrections are always more bullish than price corrections since they represent the fact that sellers have virtually no power to move the market. The most explosive moves generally follow time corrections.

Add to this the fact that the ne'er do well options traders are once again betting heavily that the market has topped out by furiously buying put options, and you have an explosive situation.

Now put buyers may get a tiny bit of encouragement if the market dips again like it did on January 25 and 26, but such a dip would only be a tease that would make them think they were right, when in reality it would represent only a move back down to major support levels. Unless you are trading for scalping profits, there just doesn't seem to be much profit on the downside in this market; not right now anyway.

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