The current market is brutal and I think some of the selling is getting overdone. Almost all stocks, except speculative oil stocks, have been sold off indiscriminately. I think the indiscriminant selling provides opportunity for those who are willing to think like contrarians and exercise patience.
I think the sell-off in small caps and tech stocks has been undeserved. Some of my stock recommendations have taken a hit but I think it would by unwise to follow the herd and sell anything regardless of valuation, especially stocks that have improving fundamentals.
I think the market will probably continue to go down some more but I think it would be wise to start to accumulate small caps and tech stocks. I would avoid/short financials and airlines.
On another note oil continues to rise and nothing is being done to counter the excessive speculation taking place. The Fed, which is causing more problems than it is solving, needs to learn moderation and start being proactive instead of being reactive. In the aftermath of the housing bubble, which the Fed helped create, the Fed decided to drastically cut rates without regard to rising commodity prices. This has helped create the current commodity bubble. Now the Fed is just sitting there without a clue.
The Fed should raise rates a quarter point to help firm up the dollar and bring down commodity prices. While I know the Fed has to take the shaky economy into account I don’t think a quarter point raise will have any effect on the economy. A quarter point raise will however, have quite a significant effect on commodity prices. It will show the Fed is willing to strengthen the dollar with action instead of hollow words. The Fed can then leave rates alone after a quarter point raise or two.
The government is equally as rash and reactive. I have read the government is talking about such drastic measures as not allowing institutions to trade in commodity futures. This would be a rash overreaction. The government should do two things to counter some of the excessive speculation in oil. The government should close the Enron loophole and raise the low margin requirement. I think those two measures would be sufficient to counter some of the speculation in oil.