Monday, October 06, 2008

Possible Intermediate Low Today at Dow 9525

Top Line: The way the US stock market traded today suggests that a solid intermediate low may have been established. We would normally expect a much stronger rebound out of the low but the 400+ point move in the last hour qualifies as a reversal.

Our primary guidepost for a low has been the VXO, the volatility index. We have mentioned 50 as sort of a first alert and we have now closed above 50 four times and today's high at 69.40 is an extreme that hasn't been reached for many years. In the aftermath of 9-11, the VXO didn't get over 60. We think the last time the VXO was over 60 was back in 1987.

At one point during the day, about an hour before the close, the Dow was down 800 points and then the turn came that gave us that 400 point up move. Sometimes the market creates a spike low like this and then, after a bounce, will create a lower price low. This new price low may show much less technical power and would then confirm that we are done going down.

Some technical indicators were extreme today. For example, the number of new 52 week lows on the NYSE reached 1973. There were 3300 stocks traded today and 1973 hit new 52 week lows. This is 60%.

For us, the biggest problem would be that the volume was not what we expected. Volume on the NYSE was less than 2 billion shares, about half of what we thought it should be for a solid low.

The main idea is that this trading day gave us enough evidence to suggest that a good low was seen today.

For those of you that we spoke with today, we were pretty direct with our instructions and we know that you may not appreciate our suggestions the way we give them. This market gives you very few chances like this. As an example, let's take a look at the GDX. Even with Gold up 33 on the day, the stock market was down so gold mining stocks were down. The GDX was down nearly 15% with about an hour to go. This Was an incredible bargain at that time. It traded down to 25.30 and closed at 27.90 after closing at 29.05 on Friday. This is just one example of the great bargains available today.

We closed out the rest of our shorts on Monday morning and spent the rest of the day trying to establish some of our long positions. We are a long ways from being done with our buying and are hoping to deploy much more of our funds over the next few days. The purchases we made today were such incredible bargains that we are going to be disappointed by the prices we'll have to pay. Like we have already said, there could be another drop which puts in a new price low that would give us another good opportunity so we will keep you apprised as best we can.

We are now going to bullish on stocks and will be buying pullbacks aggressively especially if the VXO goes back up into the 60's. We'll establish targets over the next few weeks but this is going to be multi-month advance. Do Not chase it but take advantage as you can.

After the market closed tonight, Bank of America announced poor earnings which dragged down the after hours market but since then, the market has righted itself.

You may get the feeling as we do that the powers that be are working overtime to make sure the market doesn't go down. As you have seen over the past month, these steps have mostly failed but the market may be ready to advance inspite of those failures. We do Not condone the actions that the government has undertaken because the free market should have taken care of the problem. In the end the market has taken care of some of the problem. Our point here is that the market may have now decided to stop going down regardless of what the government did or will do.

A note in history: We remember the day the Dow crossed over 10K the first time. That was March 29, 1999. That day was marked with marked with lots of enthusiasm and with hats that had Dow 10,000 on them. Today's cross of 10,000 on the Down side was not met with any celebration. We hate to ask the question about why long term investors would hold stocks for ten years with virtually no change. Oh, right, they got the dividends. Great.

GDX 27.90 (extreme low today at 25.30!!!
BGEIX 13.44 (incredible buy)
HUI: 252.46 (new 52 week low today at 234.35)

FSI: 57.71 (a brand new annual low)

VXO: 59.50 (Fourth close over 50 with a high today at 69.40!!!)

SDS: 84.34 +7.23 (high of 91.29 today)
QID: 68.87 +5.82 (high of 74.37, very near our 75 target)
[We are eliminating these two ETF's from our display as of today since we no longer own them.]

Dow Industrials: 9,955.50 -369.88 (first close under 10K since October 2004)


Anonymous said...

Comments and directness were both much appreciated.


Anonymous said...

Made a partial move back into the market today!! Appreciate your wisdom, expertise and encouragement. DT

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