Red Sea

Thick red.

One month's gains mostly wiped out in one day. It's one thing to know a day of reckoning is coming. After six straight weeks to the upside, the market was due for a selloff. But I wasn't prepared. I was heavily long in BAC going into today's earnings report. Never had a chance. It traded above 11 in early premarket, the one mere mortals like me can't trade in. Otherwise, I would've sold.

By the time BAC was sellable in premarket (2 a.m. HST), it was below 10 and sinking. That would've been the right time to get out with a small loss, but I was confident it would bounce back, especially when the new was out that it beat earnings by a wide margin, 44 cents to 5 cents. Didn't matter. So many negatives in the economy -- bad jobs numbers (unemployment) didn't help -- and the stock couldn't find its footing. I sold BAC for a major loss at 8.22. Also sold my little CROX position at 1.83 and the rest of my C at 2.92.

All in all, my 31 percent gain for the past month has been reduced to rubble. I'm now up 7.6 percent. OK, what's the analysis and lesson?

A. When there's a gap down in premarket, sell off some (or all) of the position. More so when the market is due for a correction, and all those quant programs unloaded -- not just financials, but almost everything -- in the way that's reminiscent of selloffs during the past several months. (I had planned to sell the position on a gap up or neutral, so it should be the same on a gap down unless I'm holding AAPL maybe.)

B. In lieu of a manual sell order, put in stop loss sell orders. Simple.

C. Hedge best as possible. With financials, that would've been a long position in FAZ, which is up 24 percent today. FAZ, the short-financials stock on steroids, was 8.90 yesterday but opened today at 9.94 and climbed up, up, up. It's at 11.10 now.

D. The next time the market is up six weeks in a row, I'll go 100 percent cash. Daytrades only, no swinging.

E. If a long is feasible, then stick with the best stocks -- not risky ones like financials. AAPL, again (with earnings due this week), would be a candidate before and during a correction (on a pullback). AAPL is at 119 now, down from 123 one session ago.

Though today's huge loss hurts, I know this bear market will turn for good eventually. I've proven to myself that making profits in a bull market, or at least a bear-market rally, will happen. I'm just thankful that I'm still ahead and I'll be ready with cash when the right time comes.

It wasn't all that great even before today. Though I was up 31 percent, I had left a lot of profit on the table. Had I played things perfectly (I know, never happens), I would've been up 77 percent until today. In five weeks.