Yesterday we saw all three market averages fall hard after six days of selling. In fact the S&P 500 has fallen over 6% from its recent high and managed to close Wednesday right below its 50-day moving average. A few people in fact have been saying the market is about to totally crash, with Nouriel Roubini "warning of a reverse dollar carry trade event that would cause another "financial crisis."

Art Cashin also got on this message on Tuesday telling CNBC that we could see the dollar explode in value in a "scramble to cover their shorts in the dollar," that would lead to "a kind of chain reaction and that could lead to a bit more than a 10 percent pullback."

However, I'm not scared. Remember back in late August Cashin also was saying we could have a Fall crash because of an unspecified international event like a new war or terrorist attack - a statement that was really bizarre - but was just bearish talk to justify selling out of the market.

I'm not worried, because I think the market likely bottomed yesterday. Over the past seven years we've several corrections in this bull market and the bull market of 2003-2007 and several big downdrafts in the bear market of 2007-2009. All of these drops would end in a panic washout in which we saw the VIX spike up 10% in a day, the put/call ratio close above one, and the ratio of sell orders to buy orders on the NYSE and Nasdaq reach the 9:1 level.

After days like that the market would reverse within two trading sessions and go higher. Last year that would lead to big bear market rallies and in the last bull market and this one the market would be on its highs within weeks - sometimes days. The very day the market bottomed earlier this month we saw a panic washout. And the same thing happened in July too.

What is more the market hit two key support levels which have defined the bottom of this bull market - the 50-day moving average and an uptrend support line that has marked the bottom of its profit channel since March. And when you look at sectors such as gold stocks you see the same thing - a sharp pullback to support.
I show you this in this video:

Even if I was bearish and thought we were in a new bear market I'd be expect a bounce here to get near the highs. In fact if I was short I would have covered any short positions yesterday.

Instead what I think we'll see is a move up to the 1090-1100 level on the S&P 500 and then some sideways action with support in the 1060 level and resistance in the 1100 area of the S&P 500 for the first half of November - and then a breakout to new highs by the end of November or early December to launch a powerful straight up end of the year rally.

Looking through a bunch of stocks this morning I just see many - including ones I own - that got smacked down hard the past week - harder than they did in September. It just looks unlikely that they'll be able to take off to new highs without basing and repairing the damage done on this drop - which was worse than what we saw in September when you look at the individual stocks and sectors.

But This isn't a time to be selling stocks, but to be buying if you need to add to your positions.

Personally I've been long now for a few months and despite the recent pullback my positions have given me a 10% gain for my overall account during that time. I was up at least twice that a week ago before this pullback so it is a little annoying to see the market take away half of my gains on this drop, but in my mind it was too late to sell yesterday. Watching it drop yesterday I just thought this is the panic washout so best to just hold and enjoy the next rebound and know that I'll be rewarded for being patient.

Buy and hold rewards you in a bull market and you get in by buying after you see panic washouts.

I'm still a little over fully invested in the stock market so do not need to buy anything new. And in fact there is a danger that the market bounces up and then comes down to test yesterday's low or to makes a very minor new low. Because I'm fully invested that means if I add a lot to what I already own and the market were to make a minor new low that could send my whole portfolio in the red. I don't need to take that chance.

I prefer to work off the gains I have and just add a few positions as I see them. What I'm going to do though is keep a close eye for new stocks and may do some buying going forward if I see any stocks poised to breakout to new highs ahead of the market and look to add more good ones to my watchlist.

If I owned nothing I'd be looking to do some buying. Perhaps an overall position in the SPY S&P 500 ETF. Out of the stocks I own the ones I like the best now are NXG, CGA, GOL, NEM, and SUMR.

I'm adding the following stocks to the watchlist: SRCL, ACMR, DEER, HRAY, PLG, EDN, DMC

Complete watchlist below:

My Portfolio: