Thursday, July 24, 2008

This Turn Down Does Not Come With a Mint

Top Line: Thursday's trading showed that the rally we have seen for the past week or so is probably over. We think that rally will soon be completely erased as we head into a huge down move. The move today was strongly down and looks bearish...with more to come.

The stock market did indeed roll over (from our Tuesday Update) and found the Southerly direction to be the preferred one on Thursday. We added to our short positions by purchasing some SDS early in the day. Of course, at the end of the day today we wish we would have purchased more, much more. We are going to look for ways to complete our deployment of funds to the short side.

In yesterday's comment section, we received a question from CM about the possibilities for the SP500 index. So, tonight we will approach this subject with a little less rigor than we normally do with the Dow. The one thing we think is that the distance we travel down will ultimately correct the rally we have had since 1982 (yes, that's the year 1982) and that's a long way down from here. We're not going to get all the way down because we are in a corrective phase that should retrace about 61.8% of the rise. What was the rise?

Well, back in 1982, the SP500 was just under 200 and the high last October was over 1550. If we do the math, that's about a 1350 move and 61.8% move back down would be 835 points or about 715. That is a number that we most likely won't see for quite a while and we'll probably have a rally between here and there which we will want to trade. But, the ultimate low will come in the next few years and should test that 700ish number in the SP500.

To get back to your more immediate question, we thought maybe we should "guess" on the low for this upcoming move in the SP500. Let's be clear, we don't have a crystal ball and we will continue to advise you as we go down to that low; but, the move down into September or so should take the SP500 down to right around 1000. This move is a rough guess and we will refine it as we move forward.

Back to the action, we saw that AMZN did manage to hold up the NDX (unfortunately for QID) but that was just today. The next few months will bear down hard on all of the FSI components.

FSI: 80.40 (held up pretty well with AMZN's plus 10% move)

We finally were able to upload a couple of new pictures of Jackson...Yes. That horse he's riding is really a dog.



Did you ever see such a great smile?



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