So the DOW corrects. How low?

The DOW plunged as panic struck investors. I believe Thursday’s fear was due to the GREEK riots and doubts whether Germany would say yes to the Greek bailout.

Today, the market refused to go up in spite of the healthy readings of the JOB report. 290k jobs were added into our economy. The DOW climbed 40 points but investors took it as a chance to sell off. The Dow plunged and it crept back up as soon as Germany, Spain and Portugal approved the bailout funds. Investors continued to sell their shares and Hedge funds as reported by CNBC started to short weak sectors such as financials.

Many hedgefunds are betting that the greek crisis is contagious and it would spread to SPAIN and Portugal. This is also evident in the short selling of the EURO.

Recently, Goldman Sachs said that the EURO sell off has been overdone.

Spain’s debt woe is totally different from that of Greece! Spain’s debt mirrors that of the US. The country faces high unemployment, but its debt is only 50% of its GDP, unlike Greece’s. Spain was given a negative outlook by S&P as the latter believes that Spain is going to grow extremely slowly. However, the spanish government is confident that its economy will expand much quicker than that. There’s reason to believe it. Spain has undergone this crisis before, and it has recovered from it with a stronger banking sector. Banco Santander, Spain’ largest bank, did not lose money during the crisis. The bank managed to make huge profits.

Spain should be able to maintain its triple A rating by FITCH at least, Fitch reiterated the triple A rating recently.

So this correction, or rather a panic selling and unscrupulous shorting by hedgefunds succeeded in dropping the DOW to 10300, a major support line.

With the latest update that the EURO ZONE is going to setup an Emergency fund, I am quite confident that we will see a rebound next week as some smart hedgefunds start to cover their profitable shorts. Germany chancellor keeps saying that she will win the fight against those speculators. I think she will.

This is not the correction. A correction occurs when the stock market is OVER VALUED, you correct a mispriced overbought market.

However, in this case, the stock market is not over valued yet. Stocks are trading at extremely low multiples. Caterpillar, Boeing, GE and most of the DOW stocks are now trading at historically low. The economy is recovering, it is hard to imagine Greece causing a global recession! Spain’s economy is recovering. Every other economy is recovering except for Greece’s.

Greece is just like the old Indonesia during the 1997 crisis when the books of Indonesia’s were inflated. That crisis was contagious as it was handled extremely late.

Thankfully, Greece got its bailout. With its austerity measures taking place immediately, it is highly likely that Greece would be able to survive.

I believe a relief rally is coming. And if it is clear that the other european nations are not suffering from Greece’s woes, then the market is going to accelerate its climb. The real correction should occur at 12800. At that level, the DOW correct about 12% and the correction would take 4 months.

All stocks are cheap now. I am buying Alcoa, Bank Of America, Citigroup, and a few regional banks which are not affected by Greece.