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February 23, 2011 – 5:54 pm

This morning the headlines are telling us that the premarket rally is ‘fizzling’, or that one day after the, ‘biggest drop of stock prices of the year’, stocks are neutral. Please note the nature of these statements. Fizzle and biggest drop of the year may be words that fit the situation, but not many professionals think in those terms. The market is not fizzling, it is attempting to correct after many months of a rising market. Also, it is February so stating the obvious that yesterday was the biggest drop of the year is a little moronic. We are only a month and half into the new year.

What should be stressed is that the economy is still gaining strength and stock prices are not overpriced but are certainly due for some kind of retrenchment. The news item that is being blamed as a catalyst for the ‘so far’ minor correction is the unrest in the Middle East. The media always finds something to blame for weakness in the market. Last year is was the debt burden of countries in Europe and this year it appears it’s going to be the Middle East.

The important issue is will this Middle East problem upset the world economic recovery? To that the answer is no. Oil will spike but the world is awash with the stuff so higher prices can be dealt with and any shortfall in supply will be temporary.

This is a correction and once it has run its course it will be time to jump into the market. The hard question is how deep will the correction be?

Good Trading
Steve Peasley

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