Thursday, July 27, 2006

We Reverse Course

Where do we start?  After yesterday’s post, we began looking for strike three and we think we found it Thursday morning when the market popped up at the open.  The Dow was up about 80 in three seconds flat right after the opening bell and then traded around there until just after lunch when the gains of the day quickly evaporated with the Dow ending down about 2 points on the day.

Over in our favorite index, NDX, there was a spurt at the opening that completely erased the last hour drop on Wednesday.  About fifteen minutes into the day the index peaked and headed south for the better part of the day until a rally picked up the index at the close.  We decided to exit our QQQQ long position as the market was coming off its morning highs.  Had we been watching the market we would have sold into the early rally but we necessarily had to trade a little later.  We still were up on the day on our sell and up about 2% for the we(a)k we were long.  We will probably regret our decision to get out of our long but later in the day we put our RYDEX inverse fund trades back on to make it even more painful if we are wrong.

We like our little recognitions that the market gets stronger at the end of the month and that it needed a rally after a week ago Tuesday’s lows and that it should have been for longer than seven trading days but…we can’t follow our own thinking.  The market seems to be saying it’s time to turn out the lights.  We could be wrong but the market looked as weak Thursday as we have seen in a while.

The market was oversold going into our Tuesday low last week and now has managed to crawl out of that oversold condition.  Much energy was spent on the seven and a half day rally but little was accomplished.  The over performing Dow was unable to get back to its high of a month ago and has had early morning highs that faded during the afternoon.  The NDX has just Not performed like it was going to go up from here.  

At any rate, we took the QQQQ long off the table and brought back the Rydex inverse funds.  We split our holdings into the NASDAQ 100 and the Dow 2 times inverse funds.  We have felt that the Dow would not go down as much as the NDX for the first half of the year which is why we were in the RYVNX which is the 2x NDX inverse fund.  Now, we think the Dow can match the down side performance of the NDX so we bought some RYCWX.  We are deeply in the bearish camp with our assets.  If the market decides to go up we will be in need of assistance, we’ll let you know.  You say, you won’t be home, that’s too bad, it’d be nice to see you.  Anyway, we will know soon, I’m sure.

Dow Industrials:  11,100.43  -2.08
QQQQ:  36.35  (out this morning)
RYVNX:   24.46  (in this afternoon)
RYAIX:  25.54
RYCWX:  43.42  (Dow Inverse fund—in this afternoon)
TLT:  85.21  (still in)
BEGBX:  13.48

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