Trading volumes were at record levels, so much so that the Dow's reporting system was overwhelmed and a data backlog meant prices were not re"ecting reality. With an hour of trading left, the glitch was corrected and prices plunged 200 points in minutes - one of the fastest declines in history. It was pandemonium. One trading friend told me that he was gripped by panic - and he was short!

As usual, the mainstream media got it wrong, placing the blame on the massive drop in the Chinese market. Bull. The Chinese market has tripled over the past 18 months.

A lot of dumb money has been "ooding in and the dogs on the street were expecting this most speculative of markets to come a cropper sooner rather than later.

The Chinese market is immature and its gyrations should not be a major concern to US institutions.

Others talked of investors being spooked by Alan Greenspan raising the possibility of recession. That's bull too - Greenspan's speech was reported on Monday and received little fanfare at the time (besides, he has an awful history when it comes to predicting such matters). As for the Taliban's assassination attempt on Dick Cheney - please. Journalist and blogger Felix Salmon put it well:

"Are investors balking because Cheney was attacked? Or because he wasn't hurt?"

The truth is a correction was way overdue. This was coming; China was the catalyst. The S&P 500 had risen by almost 20% since July.

Markets are not meant to go up in a straight line, yet the S&P did not pull back by as much as 3% in that time.

Over 90% of stocks were trading above their 200-day moving average - about as overbought as it gets.

A few weeks ago, I wrote that "it's hard to see a breakout to new highs in the overall market being sustained when the Nasdaq is lagging. A strong S&P needs a strong Nasdaq". Not only that, the momentum darling stocks of 2006 - Apple, Google, Nvidia - were already well off their highs. This is not what you're meant to see in a healthy bull market. Add in the fact that the market bull run occurred in a time of declining earnings growth and a neutral interest rate environment and you've got a market that, quite simply, had got ahead of itself.

Of course, if it were that obvious, why didn't I get shorting and make a mint for myself? It's not that easy. In an earlier column, I warned that over 80% of stocks were trading above their 50-day moving average and that some pro"t-taking was due. I wrote that in October!

Markets can stay overbought for a long time. I'm more interested in making money than in being 'right', so I didn't get hung up on the issue.

Sure, I could have made a bundle if I was short heading into Tuesday, but I'd have lost a packet over the preceding months.

A lot of people are pointing out that it had been over 1,000 days since US markets had a one-day decline of 2% or more. So what? You could have used such data to suggest a correction a year ago.

The truth is it's nigh on impossible to time these things perfectly. I was well aware that a correction was overdue so I was wary about initiating long positions in the major indices. Aggressively going short in advance is a different matter entirely. While my focus is US markets, most of the above applies to European markets also (particularly the Iseq, which has been on a tear for the past year and badly needs a breather).

So what's next? Historical data shows that big one-day declines are typically buying opportunities, but I think there may be more downside to come. Fed chairman Ben Bernanke issued some soothing words on Wednesday but market buying was relatively subdued. For now, I expect any weak market rally to be met by sellers. Corrections typically occur twice a year and last weeks rather than days. Also, the gains of the past three months have been wiped out. Human nature results in traders looking to get out at break-even, so traders who bought at higher prices during this period will likely create a lot of overhead technical resistance.

Increased volatility calls for smaller positions and wider stops, however, so I wouldn't bet the farm on anything.

A decent correction would be a healthy thing. I hope it happens, because volatility brings opportunity.

The media will hype it up and talk of crashes but that won't happen.

Global markets are suffering from some excess but the fundamentals aren't a cause for panic.

As for my own trading, I "gured the above analysis might be more worthwhile than reporting my own goings-on in detail. I bought Elan and got stopped out for a quick loss (seems the downtrend isn't over after all) as well as getting stopped out of Biogen at break-even. As for eBay, I closed my original position, shorted it, covered after garnering tasty pro"ts on Tuesday and went long at $31.50 on Wednesday (stop loss under $30). I took a number of day trades on Tuesday and, after all that, made about Euro500 for the week.

Considering the week that's been in it, that's pretty terrible. Still, it's been exciting as hell. I've often said that one should trade for money, not excitement, but what can I say? I'm a monkey, not a machine.

Weekly gain/loss: + Euro500 Overall balance: Euro38,650