Thursday, July 13, 2006

Possible Breakaway Gap on Friday

Tonight, as we write, the futures are actually down quite a bit, predicting a lower opening in the morning.  This hasn’t happened very often recently and it shows some capitulation by the bulls.  We think this is an important topic this evening as we have shared this type of thinking in the past and tonight a possible moment is occurring.  

In order for the market to decline as much as we think it will, there needs to be some big down days.  These days generally come when there is recognition of a trend change like we have seen over the past few weeks.  For most of the spring we have said to sell in May and go away and the earlier in May you would have sold the better.  But, right now, the rest of the world is starting to feel the significance of the move that’s happening.  

Thursday was a very telling day and it wasn’t very difficult for anyone to tell what was happening.  First, there was a good sized drop in the first hour or so of trading followed by a spirited rally that actually took the NASDAQ 100, NDX, green for a few minutes.  After that the market started to free fall again into the close, with the NDX closing basically on the low for the day and down 23 points.  In the overnight futures market, the NDX futures are under fair value by almost another 10 points.  

We are only too happy to be in cash with most of our funds and in the Rydex inverse funds with the rest except for some TLT fund.  We hope that you took the opportunity to unload most of your stocks in the past few months.  We are going to stop telling you to “be careful out there….” because the time for being careful is over.  

We want to remind you that it is FREE WEEK over at Elliott Wave International.  Just go to this website and sign up for their free information.  This is free until next Wednesday afternoon so hurry and take advantage of it:  

So, we have seen the True Contrarian’s point of view and now we see similar views expressed from Elliott Wave International that the market is about to drop about 25% going into the fall or early winter.  On Thursday, the market shared that same information with us so I think we are safe in assuming the fall is coming.

We suggest sitting on the sidelines of most investments, particularly stocks, until we see some reason to venture back into the water, which shouldn’t be until late in the fall.  We may have some opportunities in the mining stocks earlier than that or some other class but for now, cash is king.  Of course, we do have positions in the Rydex inverse funds to take advantage of the near term drop.  If the NDX drops by some 20% the RYVNX will go up about 40% and the RYAIX will go up about 20%.  Go team.

Have a great trading day and a good weekend.

Dow Industrials:  10,846.29  -166.89
RYVNX:   24.43  (another 52 week high)
RYAIX:  25.49   (another 52 week high)
TLT:  84.99
BEGBX:  13.41

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