Wednesday, July 23, 2008

Just Ahead of a Decline?

Top Line: With Wednesday's spike in the morning, the Update is starting to deploy funds on the short side. We talked about the QID we purchased last week and forgot to say that we had sold it so we have been mostly in cash for the last few days. Now, the task is to try to find good prices. For this down move that we expect, we are using two primary ETFs, QID and SDS.

After a slow start on Wednesday, the market got rolling about ten minutes into the day. The market just popped for about forty five minutes following Tuesday's late day run. Looking at the NDX, our favorite index, we can see a low point on Tuesday afternoon with about two hours to trade right around 1792. Compare that with Wednesday's spike high at 1865 about an hour into the day and you can see the move was over 70 points in three trading hours or almost 4%.

These are ideal times to take advantage of high prices to sell. Of course, for us and we're guessing you, these are in the middle of work hours which makes it difficult to think about trading. So, you have to "guess" the best place to enter your trades if you are trading the ETFs or guess at the best days to add to short funds like RYVNX or RYCWX. We can't really give you advice as to what to buy or sell but these are some good "short" type vehicles.

Vehicle plus today's closing price with the 52 week high:
QID (ETF based on the QQQQs) 44.27 57.75 (on March 9th)
SDS (ETF based on the SP500) 66.44 75.74 (on July 15th)
RYVNX (Fund based on NDX) 13.82 17.89 (on March 9th)
RYCWX (Fund based on Dow) 37.61 42.51 (on July 15th)

Do you see the pattern? The March lows in the NDX have not been broken to date but should be on this move. For the blue chip indexes, the financial stocks moved to a spike low on July 15th which should be broken but it may mean that other sectors will need to be responsible for going down.

If you are of the Long mind and really want to purchase something, you have the long term Treasury bond ETF, TLT. This fund has been trading near 90 again and has the potential to go back up to test the 52 week high near 98 over the next couple of months. Plus, you get a dividend along the way. The dividend is paid at the beginning of the month and amounts to about 4% per year. Total return could be about 10% for the period--not too bad.

FSI: 81.93 (back over 80 again with more strong action after the bell from AMZN)


Anonymous said...

You say you see the Dow going down into the 9000 range, do you have a low range for the SP500?

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