Just yesterday, we discussed how stock market plunges can be set off by what amounts to a “global margin call.” And that’s exactly what yesterday’s decline felt like, as the selling was relentless.  

 

There were no bounces, no dead-cat rallies as the selling built pressure built until it reached its crescendo.   

 

That crescendo, a 998-point spike lower on the Dow Industrials, was caused directly by some computer-based trading programs gone haywire. (There’s no other way to explain how Accenture (NYSE:ANC) could drop from $40 a share to a penny.)  

 

But there should be no doubt that the selling pressure was building yesterday and there was no relief valve. The market essentially blew a gasket.   

 

One of the main reasons for the sell-off was the euro. Traders sold it all day. And why not? There was no one willing to take the other side of the trade, no one willing to take a stand on the euro.   

 

All the market got was toothless comments from ECB head Jean-Claude Trichet that Greece wouldn’t default, Spain would be fine, everything would be OK, blah, blah, blah.   

 

It’s pretty clear that words without actions don’t help very much. It’s not totally Trichet’s fault. He doesn’t have the authority to act to defend the euro or to provide emergency loans to banks. Even now, European leaders still have to meet to figure out the next course of action.   

 

In past issues of Daily Profit, I’ve railed on the EU for dragging its feet instead of coming to Greece’s aid. I mean, Germany still hasn’t voted to actually lend money to Greece! (That vote is supposed to come today.)   

 

I’ve even mused that the glacier-quick response was a deliberate attempt by Germany and others to sink Greece and destabilize the Union 

 

Economist Paul Krugman believes Greece’s exit from the European Union is inevitable. He believes the only way for Greece to deal with its debt is to jumpstart its export-based economy. The only way to do that is to devalue the currency and make its goods more competitive. The only way to do that is to leave the EU and ditch the euro.   

 

Krugman goes on to say that any mention by Greece of leaving the EU would spark a run on banks. And if the EU discusses the possibility publicly, it invites a speculative attack on Greek banks.  

The EU needs to step up and do what it takes to help Greece. However, so far, it’s not shown the resolve to do this.   

 

As the euro sells off, the U.S. dollar is rallying. That’s the main catalyst for the recent decline for stocks and oil prices.  

 

Gold is a more interesting situation. It can rally on a weak dollar or on economic panic. It is the latter catalyst that took it above $1,200 an ounce yesterday.   

 

U.S. Treasuries also rallied yesterday. This should actually calm investors because it shows, once again, that a flight to safety means U.S. assets.   

 

So what’s next? Where does the stock market go from here?   

 

Well, I hate to sound like a broken record. But I think there are plenty of catalysts to take stocks higher. 

 

Germany will certainly approve the Greek bailout. The euro should rally against the dollar, helping oil prices. Non-farm payrolls came in above expectations for April, and the March number was revised higher.   

 

The Wall Street Journal reports that Goldman Sachs is in settlement talks with the SEC. And finally, the recent decline has worked off overbought conditions and lowered valuations pretty much across the board.   

 

I know it may be hard to be bullish after the last few days. But there is likely upside coming.   

 

I would favor oil and energy stocks. They took a beating over the last couple of days as the U.S. dollar rallied.   

 

I just recommended a stock to Energy World Profits that’s moving from a $0.03 loss in 2009 to a $0.14 a share profit in 2010 and $0.38 a share in 2011 – all because of its Bakken operations.   

 

Yesterday, it fell from a $4.03 close on Wednesday to close at $3.86 a share. That’s not a very big drop at all, when compared to the rest of the stock market.   

 

That tells me that there are strong hands buying this stock. I look for a strong move above $4 in the near future.  

 

You can learn more about Energy World Profits HERE. You won’t be disappointed. 

Published by Wyatt Investment Research at