Last Thursday (5/6) the Dow Jones went free fall to 9,977 point from the 10,838 opening level. That’s 861 point drop (about 8% ).  Fortunately, the level came back right to its normal level and ended 10,520. (Still more than 300 point drop)   But it was just scary looking at the chart! I was looking at the Google finance graph, and got really shocked and thinking the end of financial world finally arrived. The whole dropping and returning process took about 20 minutes. Drop took 10 minutes. The lowest point was reached about at 2:48 PM.

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Now what caused this error? Did investors really get scared all at once that they sell off all their well positioned long term positions? That may not be the reason. I read from various places big banks and investment firms use special programs with Artificial Intelligent to trade. These programs evaluate various situations,  news , technical charts , volumes to determine to buy or sell stocks. It may have gone crazy that they all have the same logic and determined to sell all at the same time.  I am not so sure hundred percent, but I think faster and smarter computers are somewhat responsible for what happened. ( SEC Summons Exchange Chiefs to Washington )

The important thing is that I should have not panicked but should have bought some quality stocks at that time. I guess I am just a simple human. So here is the important lesson. Try to capture the lowest price. Don’t hurry. Just wait the price to come. There are various techniques involved to detect the lowest price including RSI 7 methods that I really like. (I will discuss this in some other time)

The financial market is highly volatile and the DOW lost another 140 points on Friday. Dow lost 771 points during last 4 days. The main reason was the Greek and European financial meltdown and everybody reminded of November 2008 US market nightmare. Now everybody got somewhat scared. But I actually bought some stocks SCCO ($27.42 -0.11 -0.40%) and BAC ($16.18 -0.10 -0.61%). Here is my rationale.

Southern Copper Corporation SCCO ($27.42 -0.11 -0.40%) is metal mining stock and has been doing good until mid April and after that , the stock kept falling from $35 to current $27.42. For the other metal mining stocks, the trend were very similar. The RSI7 indicators are very low for daily,weekly and monthly and finally the dividend yield percentage is pretty good. At the current price , the yield percentage is 6.56%

For Bank of America BAC ($16.18 -0.10 -0.61%), I think the financial and banking stocks  are pretty much battered by the Greek news and dropped more than they need to be.

The most important reason was that I think that the market will end positively on Monday(5/10) . Because … We have had 4 consecutive sell off days . European government would act to prevent this problem goes crazy (European stock market is terribly down already). And the people will have enough time to think about these events over the weekend and will have clear and calm thoughts away from the dramatic emotional thoughts that they had during the last week.

And my guess is partially right.  E.U. Offers $957 Billion Rescue Package . The DOW Future is up 217 points at this time (5/9 10:50 PM) . I know it’s too early to jump to the conclusion and celebrate, but hey I still believe that I got good stocks at low prices. I am kind of regretting not buying Apple AAPL ($235.86 -10.39 -4.22%) stocks,though. They came down pretty low on Friday too.

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However , if you are thinking about joining the celebration and purchasing that stock, just watch out tomorrow. This may be a bull trap and one more time the DOW can crash to lower points on the next day just like in the past. This E. U. Offer is only for Greece and there are other troubles ready to go off too in other European countries. So if you are going to pursue on buying stocks tomorrow, just buy limited amount (just in case anything goes bad soon again) and don’t go chasing the flying price . (Set a limit price that you are willing to accept, and don’t go above that to buy the stock)

UPDATE:

After close on 5/10/2010 : Dow 10,785.14 up +404.71 (3.90%). This is amazing!

My portfolio result is better than expected.

  • SCCO ($29.72 2.75 +10.20%)
  • BAC ($17.30 1.12 +6.92%)

I wasn’t really sure that I am going to see this much of green on Monday. So this is very pleasant suprise. However, now I am just bit worried where this market is going through out the rest of this week. It feels like people are getting emotional these days.

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