Monday, January 19, 2009

All Eyes on Washington...Bears on the Street

Top Line: The over night futures are weak this evening which may lead to a lower opening on Tuesday. The low prices are shaking many out of the market in order to prepare for a good rally.

Options expired on Friday with some minor drama. The Dow opened up about 100 points and then sold off about 200 points from there before rallying back those 200 points into the close. With a little selling just before the close, the Dow managed a 68 point gain for the day...but, that's all so "last week".

Tuesday marks the beginning of a new Presidency and should have been enough to rally the stock market over the early weeks of the new year. That has just not happened so will the next few weeks start that rally or not?

The US market was closed on Monday (which is why there was no post from the Update on Sunday evening...we only publish on the evening before trading days). The other global markets were mostly open and largely lower so the US is making up some ground to the downside this evening. We'll see how trading goes here on Tuesday.

The market seems to be making a run at lower prices but this should be a buying opportunity for those of you with some cash left. We have some left and will probably be looking seriously at purchasing more this week. We have been heavily leaning toward commodity type positions including commodity producers over the past several months. Our top holding is GDX which had a solid advance from Thursday's lows around 27.25 to Friday's close of near 31. Gold itself rallied 4% on Friday to encourage the GDX. We think we own enough of GDX, so we probably won't be purchasing anymore this week plus after a giant rally this is not a good time to buy it.

We have been thinking about getting back into the long index ETF's and they now may be getting cheap enough to consider again. However, the commodities look so cheap and seem to have a lot more upside to them so we would like to see a further drop in the stock indexes or we would buy more commodities that are cheaper.

Looking specifically at the SSO, it traded up to near 29 a couple of weeks ago and fell below 22 last Thursday. Friday it traded up near 24 and closed just above 23. We think the near term potential of this is about 34 so if we can buy it back down under 22 we may consider it. The QLD doesn't seem to have dropped quite as much over the past couple of weeks so doesn't look as attractive but we will keep an open mind about it in case it does give us another opportunity down around 24 or less.

Tuesday's trading will give us a good idea what will happen in the near term so we want to keep a close eye on trading. Given good opportunities we may take advantage of them.

We are doing more trading than we normally would but given the market's volatility, we think trading will need to be done more over the next few years. There may be long periods where trading is not needed but in the short run the market has given us plenty of trading type situations.

Right now we are getting close to a large rally and we don't want to miss it. Thursday's turn around may have given us a good indication for that rally but the market wants to hold that obvious until the last possible moment. That serves to confuse as many as possible.

We see the volatility indexes as far to high to consider selling our positions. The VXO should get into the 20's before we think about selling and it's still in the high 40's. The bears are out in full numbers according to these high levels so we think the market should rally strongly to shake out these bears.

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