Thursday, February 26, 2009

GDX Review

Top Line: Prices are still cheap...

The stock market is training participants. Every time the market bounces, sellers come in so everyone is learning to sell every rally. This is the market's way of shaking out weak hands, this time.

Tonight the market still seems to want to go down some more. There is this pull to Complete itself...Jerry Maguire style. We did get another chance to buy again today. We had another 12 cents in our account. Maybe once we get this rally, we can keep a little more cash on hand for these bargain prices.

We thought we should talk about GDX this evening. Gold has enjoyed a very strong rally over the past few weeks and GDX hardly moved up at all. Now, over the past few days, gold has dropped pretty hard and GDX has moved down until today. Today, GDX was up inspite of gold being down.

The way we see it, there are two angles. The first is that we think the mining stocks move in front of the metal, at least that's our contention. Looking at the last six months, gold and miners have moved together but the miners have moved in front of the metal itself. As gold rose in the past couple of weeks, it was Not confirmed by the miners. There was also the temporary blip over $1000. This kind of thing gets people excited about the possibilities.
Since we watch the miners and they told us that we should not expect gold to rise much, we are not too surprised by the down move. What does this imply for the miners is what is most important to us. Since the miners don't have a tell that we know of, we have to go to the second angle. That would be the subtle fact that the miners are undervalued compared to gold itself.

If you go back to last year when the miners and gold peaked, you can see the difference from today. This past week, as gold pushed above 1000, GDX traded in the 37 range. Going back to March of 2008, when gold moved above 1000, the GDX was at a price over 55. It is our opinion that GDX is 40% undervalued according to the price of gold. Yes, 55 is our minimum target.

We have started to consider the possibility that the market is going to wait until next week's jobs' report. We don't like waiting another week but it is a possible turning point. There are other possible turning points such as this is the end of the month. Either way, we will be patient...oh we really don't like this waiting stuff. Oh are some more pics while we wait.

The Luau...

The Crater at Haleakala...this is a pre-dawn sequence...

This picture had a 13 second exposure time. There was a car on the road and, since it was so dark, the exposure time allowed the car to travel all the way through the shot. We thought it was worth sharing.

You can start to make out the crater in the higher light. The clouds are down in the crater, just to the left of center.

Now, you can start to see the sun paint the top of the clouds.

Haleakala is home to the Haleakala Observatory housing several telescopes. This sight is said to have the fourth best conditions on the planet.

But really, there are no people in the pictures so we need Jackson and others back...

For more pictures you can use your favorite search engine. The mountain is 10K high and you can see a long ways and all 360 degrees.

And, maybe one more whale of our best ones. You can see Haleakala rising above the clouds in the background.

Wednesday, February 25, 2009

Lack of Confidence in Banking

Top Line: The market seems to still be bottoming. The next move of significance should be a violent one in the northerly direction.

The stock market doesn't know what to do with all of the information it's getting. The news seems to be bearish because an end to the economic situation appears to be getting further away rather then closer. When the whole world is anticipating a major meltdown, the logical outcome is a sharp rally.

Since we expect a sharp rally developing any day now, this would be a good thing and we feel confident to be long. The extreme selloff we have seen over the past couple of weeks also supports our confidence. This week has been a little tough on our portfolio but it's in much better shape than it was back in late November.
We are now being, or should we say, trying to be, patient waiting for the rally to begin. The positions we purchased in the last few weeks have been at pretty good prices. We purchased a small amount today in fact. These purchases look cheap even now but they should look dirt cheap by the time this rally is over.
In the news today, the one that moved the market could have been the one that talked about stress testing banks. The idea is that the banks need to see what their capital looks like if unemployment moves up and home prices drop more. We're not sure how this information would be used but it may get at the kind of exposure some of these banks have.

We have considered that this entire situation is a lack of confidence. Treasury Secretary Geithner mentioned that he thinks the banks are responsible for creating a lack of confidence in the banking system. The problem is how to restore that confidence. That is the market's focus in the short run...or at least that's what we think is it's focus.

More Hawaii pics...

Tuesday, February 24, 2009

Starter Rally

Top Line: The stock market posted a surprise rally exactly as people have started to give up. These lows won't hang around long.

DT left us a comment for more pics and that's what we were working on tonight. This takes some time as the photo finger snapped about 750 pics with only a few worthy ones. But, more to the point, DT says she is going to be buying at the stock sale going on right now. Go, DT.

The prices in the market are compelling for many reasons, many of which we have detailed here over the past several months. Now that the market has "put in a new price low" which satisfies the Elliott wave theory, we can get more comfortable in our long positions; or, do as DT is doing and buy some more. We keep looking for more ways to buy these cheap stocks.

In yesterday's post we said we wouldn't be buying any GDX but today's price drop there brings the price down to a level that is getting interesting again. We see that it is just above its rising 50 day SMA and could easily bounce off that line. (Check and go to indicators and select the SMA 2 with 50,200.) The 200 day line is flattening and with another push above that line by the stock, it should start to turn up...very bullish. We are looking for a price at least as high as last year's high in the mid-50's.

Otherwise, we are now prepared to sit back and let the market go up. This is going to be more difficult for us to do than anything. As the market has moved lower, all you want is for some upside and now when you get it you have to resist the urge to sell into the first rally. There is much more to come over the next several months and we would hope that together we can figure out a good place to exit.
In case you were wondering, we will be early on the way out. We're much better bears than bulls so we will be getting into short positions too early and going through the same pain we've gone through over the past several months. Oh well, hopefully it will be after we have doubled our money.

We leave you with a couple more pics of Hawaii.

We celebrated Jackson's first birthday in Hawaii...too bad he won't remember.

Great cupcake cake.

Aloha to the cake...

Jackson can't wait for Mom to blow out his candle, that cake looks too good.

He's off to a good start...

Now, we're getting the hang of this cake eating thing.

Boy oh boy is that good!!!

Maybe just one more bite and that really has to be the last bite.

Monday, February 23, 2009

Price Low Here???

Top Line: Another new low in the Dow today...yes, continue to buy.

We may be in the best buying opportunity of the next couple of years right now. For those of you who haven't deployed all of your funds, these prices are compelling but what would you buy?

There may be some upside surprises in the financials but we think there are other places to find some possibilities. We continue to think the energy area is a good place. There are many ways to play this area but try to get good prices.

Gold has given us pretty good leadership for the energy commodities as well as their producers so we look forward to higher prices later in the year from this sector. The volatility indexes are in the 50's again giving us greater confidence that this dip should be purchased. Monday was tough on our portfolio because most of what we owned was down but we did have a couple on the upside to balance it...not by much.

What may happen? We took a look back at our January 21st post where we asked the question how low the market can go. In that post, we made a simple Elliott wave "guess" how far the market could go down if it wanted to and came up with about 7000 in the Dow. At least that was the target for that day and it looks like we have come near that today. We didn't like the idea last month but here we are and more buying opportunities exist.

The major headlines are very negative and sentiment has quickly turned negative, too. These are sweet music to contrarians who want to go the other way. As the market closed today, the evening session came back a little but that does not provide certainty for a turn around. There could easily be some selling in the morning, possibly strong selling due to these very negative headlines. The fact remains that we are near an Elliott wave end with a fifth wave nearly complete. This is not the time to be getting cold feet and selling your positions. This is bargain basement time for some oversold stocks.

We do Not recommend buying gold mining stocks like GDX at this time. Even thought these stocks could go up quite a bit between now and the top of this move, there are better opportunities. How are those stocks that you keep an eye on? Are they looking like great bargains? Or, do you need to find other places? Maybe you are like us and are mostly in. These are the sad things about not having some cash around...can't buy these great prices, at least not much.

Yes, DT, we know why you're here, Jackson pics. We just want to point out that here are three pretty important guys and notice that there is no Snow. More pics the rest of the week...

Here is one of the whale shots...there will be more...yes, Jackson, too.

Sunday, February 22, 2009

Market Wants to Turn on the C News

Top Line: The market continues to provide good buying opportunities.

Yes, we're back in the saddle the two weeks we've been gone, the market has decided to continue in the down direction. Friday's Dow close was the lowest since 2002 breaking below the November 2008 low close, however...

You may have noticed that the SP 500 failed to break through its own November low and that the NASDAQ indexes are well above their late 2008 lows. The Russell 2000 index has not found a new low either. These are prime non-confirmations of the Dow low and give rise to some of our favorite thinking processes. When the Dow moves ahead of the rest of the indexes, that is a good sign that the broader market infantry is not following the generals leading to a reversal.

There are other significant signals that this may be true. The first is the volatility indexes themselves which have moved into the 50's. This is a good buy sign as we see it. Gold has managed to rally to $1000 leaving an open question is to why that might be. We would say that gold is signalling the return of inflation and higher interest rates. In that regard, the Treasury bonds are struggling to hold these levels and will in all likelihood find lower prices with rates going the opposite direction (up, in case you wondering).

We had sold some of our stock index funds late in December to get some cash ready for a drop in prices but held onto our commodity based positions. We had been pretty bullish on the SP 500 in earlyJanuary, looking for an inauguration rally that never materialized. As January wore on with no SP 500 rally we decided to buy some energy related shares which we have continued to buy over the past several weeks.

GDX has kept our portfolio about even for the year since we are heavily invested there. We did take a little off the table in the last week or so due to our heavy weighting. Even with these sales, GDX remains a dominant part of our portfolio. The funds we received for the sale of GDX have now been plowed back into further energy type positions, at fairly good prices.

We do think that the SP 500 stocks need to rally soon since the banks have nearly gone to zero. This evening the news is that the government is thinking of taking more of an equity position in the likes of C (Citigroup). The WSJ broke a story that the government wants to convert some of its preferred shares in C to common thereby owning outright a larger portion of the company. This after we heard several denials of bank nationalization over the past few days.

The luau was good if you like eating and drinking near the beach on a nice 75 degree evening watching the sun go down into the ocean. Did we mention the weather was nice? There were pictures taken so we'll get some of them up on this week's posts. Jackson turned one in Maui, too bad he'll only remember it with the pictures that were taken.

Sunday, February 08, 2009

Wednesday Update at a Luau

[Editor's note: The Update will be suspending posts for the next ten days. We realize that this is a poor time to be having a vacation but it's been planned for several months. The Update will return in two weeks or maybe less.]

We apologize for the lack of posts in the next couple of weeks but we do need a break. The market seems to be on a roller coaster ride with an upward bias so that's what we are looking for over the next several trading days.

Tonight the futures are falling but that doesn't generally mean much for the live trading the following day. We think there is a good possibility for a strong rally while we're gone. If so, we will be looking to take some profits...that would be nice.

Right now, and for the past few months, we have been steadfastly buying cheap assets expecting a strong rally some time this year. We had a few dollars left over so we bought some stock last week as we mentioned. Thursday and Friday were good turn around days. Over the weekend the traders are getting nervous because of all the activity in Washington. Our position is that whatever they do will be bullish for commodities and stocks, and not so bullish for bonds, in fact down right bearish for bonds.

GDX looks ready to break out over its 200 day SMA but it may need one last retreat under it to get enough steam to power above it for good. We expect a pop above that line sometime soon with a run to the high 30's if not 40. We'll see how high it can go on this run. If something significant occurs, we will be watching and may make comments in the comment section if we can.

As for stocks generally, the strong reversal last week led to a strong advance. People have been convinced to sell all rallies and this is no exception. As we see rallies that cause people to run after stocks instead of selling them, we will start to think about selling our positions. Until then, we just wait.

Have a good couple of weeks.

Thursday, February 05, 2009

Big Bullish Reversal From Under 8000 in the Dow

Top Line: The market wants to go stayed under 8000 for about an hour and a half.

Thursday was one of those days that we wait for. These days come up once in a while. The good trading opportunities like this are particularly enjoyable because they involve immediate gratification.

When CSCO announced earnings on Wednesday evening, the market, not just CSCO, dropped hard. How many times have we seen the market drop or pop at the open just to completely reverse itself right away. Just as a matter of review, we thought we would just take a look at the few opportunities we considered.

After putting the Update to bed last night, we put ourselves to bed and thought about what makes the most sense given the facts. Here's what we thought. We didn't really want to trade CSCO but as it turned out that was an ok idea, too, especially if you had purchased it in the after hours on Wednesday.

What we did think was that there were a few ideas that made sense. Sometimes you just don't have time to come up with very many. What you do is watch several things and choose something that gives you good probability of success. To us, this was going to be a two hour trade or maybe less so we don't need or want to understand the fundamentals.

Anyway, we had a notion that the Q's would be a good vehicle because CSCO is part of the Q's. The choice would then be the QLD which moves twice as much as the Q's themselves. Another choice was the SSO which moves twice as much as the SP500. Both of these ideas worked pretty well but there was another that we considered as well.

We have been watching the financials for a long time, several years. This pursuit has led us to watch the top banks in the last several months. The one we picked was Bank of America (BAC). We decided that if BAC dropped below 4, we would take a quick trade on it. Of course, it did trade down to 3.77 which was definitely below 4 but we Didn't have an order in to take advantage of it. From there BAC jumped to nearly 5 during the day. Unfortunately, we didn't really have an exit strategy either but any one of these three ideas (four if you count Wednesday's after hours CSCO trade) would have been profitable given you would have gotten out after the market jumped.

This blog is not really about short term trading like this but once in a while, these types of trades can really enhance your they're fun. Ok back to work...

Thursday, GDX closed at the highest price since we have owned it. GDX has traded higher than today's close but the stock has not closed this high before. If you look at a chart of GDX with its 200 day SMA (simple moving average), you will see that for the last few weeks it has been bumping up against its 200 day SMA. One of these days the GDX will pop over that line and try to turn it up. Generally a stock wants to stay close to its 200 day SMA which was one reason we really liked it back in the fall.

The stock market is getting ready to go much higher. The idea that the Dow wants to go much below 8000 has been refuted for the past several weeks. The sellers are Hoping that the market goes down so they can buy. They will end up buying at much higher prices and they will most likely be buying from us.

Wednesday, February 04, 2009

CSCO Leads the Market Down After Hours

Top Line: The stock market looks weak which means only one thing...buying opportunity. Yes, we know it's getting old.

The weakness came back on Wednesday but it took until after hours for the NASDAQ to catch up with the Dow to the downside. That's when CSCO announced their earnings and disappointed the after hours market.

The market has a lot of fans that are bearish. The Dow did drop under 8000 Again today so let's see how long it takes for it to get back over that mark. Most technicians are looking for a solid break under 8000 giving the Dow a quick drop down to new lows. Just because the Dow dropped below the magic 8000 does not automatically guarantee a further drop to say 6000 or lower. If it wants to

We can understand the fear out there but the selling has been much lighter than we had during October and November. If you sold back then, do you now think that the market will give you a chance to buy them back at lower prices??? There are stocks right now that are cheaper than they were back in the fall but what we have to do is figure out if they are buys now, not if they're going down some more...

All day long we were thinking that the market was doing exactly what we wanted it to in order to show us that a low is in. The Dow was down but the NASDAQ was holding up very well going into the close. It is possible that the entire NASDAQ was hoping for good numbers out of CSCO which was holding up that index. That is possible but all were disappointed in the news and the index fell hard on the news. That took our main thought and flushed it. But, the concept is still there. The Dow looks weaker than the broader market which usually means that the market is done going down.

Can the market go down and make new lows? Of course it can but when it drops on news from CSCO it doesn't seem like a good enough reason to take the entire market down. What needs to happen is for the government to come to an agreement on the future of the stimulus package...we have been talking about this for a long time but the people don't like the results coming out of these discussions.

We are not giving you much this evening. Maybe the market will give us something on Thursday.

Tuesday, February 03, 2009

More 401(k)

Top Line: Keeping that 7 on the front of the Dow has been very difficult. The past few weeks, the Dow has been under 8000 several times but has failed to stay there. We remain bullish.

The stock market showed some "Juice" on Tuesday and may be ready to make a good move. We have been waiting for some sign of life in the market and Tuesday's move wasn't very strong but it does represent some life. If it can keep moving, more power will come into it. That's the way the it works...after a big move, everyone wants in. But we're getting ahead of ourselves again.

We actually bought some more stock today. We have been concentrating our purchases in the energy sector lately. The stocks that we have purchased in the past couple of weeks have been near their lows for the year or more which made them compelling buys. We expect at least some bounce back in the next few weeks for these newly purchased stocks.

We would like to continue our discussion from our last post. The 401(k) world has been dominated by the buy and hold crowd who lost a lot of money last fall before they were willing to finally sell out. Now, they are holding on to the possibility of lower prices to justify their departure dates. The question is going to revolve around when will they be "comfortable" enough to get back in. That will most likely be after a good upside run.

We jumped back into the 401(k) back in October over a series of days, again not much ability to get opportunistic here. We just wanted to get some exposure to stocks at that time...ok, 401(k)'s are tough. We have learned much since then...too late for then but we now realize that we have to be especially careful when committing funds to a 401(k). At least our options do not allow for much clarity in investing. Our options are the usual boring ones...large cap, small cap, international, bond, balanced fund, and stable value. How do you decide when to buy when you can't figure out what's in these funds? For us, it's nearly impossible.

What do we do? The current situation is a Bear Market and requires a much different approach than the sleepy buy and hold technique. The best we can offer for good returns is to find intermediate moves that can be traded. In a bull market there are scary drops to take out weak bulls and to excite bears that the top is in. The exact opposite occurs in Bear Markets, that is, there are scary pops to shake out the weak bears and to entice the bulls back into the market. That's where we think it possible to make a little money in your 401(k) or 403(b).

If you take a quick look at the SP500 (use the symbol SPX over on our bigcharts link to the left), you can find the 200 day SMA (simple moving average) by using the "Indicators" tab and selecting the SMA and type in 200 to the right. That will show you where the 200 day line is. What you will see is that it is over 1100. That is the target the market is shooting for. That's a long ways from here and represents a great opportunity for the 401(k) world. It is our expectation that the SP500 is headed much higher than that this year but it is a Trade, not a long term investment.

What's coming up this Friday is the jobs' report for January. The estimate is for a 500K job loss which is just a shot in the dark. There could easily be more than that. The market is expecting bad news and they will get it. It may actually cause a small selloff...we don't think the number matters again this month. The market will give us more clues in front of that number but we are finally seeing a glimmer of a rally.

One last thing...the Senate is going to bring a better solution to the economic stimulus package. At least the resulting legislation will be more palatable to the world. Today's news was that they were talking about lowering the corporate tax rate from 35% to 25%. This is the kind of news that could send corporate profits up if only temporarily. This kind of cut may have strings attached like the corporations will have to hire people in order to get it or something like that.

Enough already...

Monday, February 02, 2009

Waiting on the Juice

Top Line: We continue to be bullish...yes, it is getting trying but we are so close to a major rally.

The stock market is exhibiting no signs of a rally and most are waiting for those signs before they will buy any stock. We think that it's the market's job to confuse as many people as possible. You may think we are they say, often wrong but never in doubt.

Last fall when the market collapsed into October and November, the news was bad and the news is still bad. Part of the function of the market is to be a discounting mechanism. In this case, the huge drop in the fall was telling us that the news would be bad for some time to come. The economy is still in trouble and the bailouts continue. That is precisely the reason for the market to go up. There is more money floating around for all kinds of reasons. The main one is that people sold some of their stocks in the fall, of course, they sold after the Fall in prices at ten year lows in prices.

We were buying from them but looking back, we could have done better. That's not stunning news but once in a while you have to take a look at what you were doing and see if there is something better that you could have done.

One of our main problems has to do with trading in 401(k)'s or as some have called them 201(k)'s. We hope your 401(k) didn't take that much of a beating. Our main problem with the 401(k)'s are the limited options in these vehicles. Looking at some of the choices available gives us very little information but one thing is for sure...we don't know what we are really buying.

With an IRA or an after tax account, you can be much more specific about what you buy. You don't have to leave it up to the fund managers of your particular allocations of funds in your account. Not only that, the timing of your purchases is at the end of the day prices. How can you be opportunitistic with that?

So, how do you manage a 401(k)? We don't think it's very easy to do. We have been suggesting that you buy since October and October 10th was a good day to buy some great deals on individual stocks. But, a stock fund in a 401(k) would have included a large portion of financial stocks which continued to get punished into November and even beyond.

That brings us to the other problem with these funds...the other participants in the same fund. While it's something we have tried to change in ourselves and our readers, human nature is tought to change. Normally, people use part of their payroll checks to buy some "diversification" of funds. In fact as the market "goes up", they get more confident and more and more people put more and more money into these the high prices. They normally only sell in times of stress like last fall and probably in 2010 and 2011.

Imagine the fund manager with this flow of funds. The manager is supposed to be "fully" invested at all times even though they know that they should be selling into strength and buying weakness. The flow of funds is completely the opposite, they buy the most at high prices and sell a lot at the lows. Selling by 401(k) participants is usually a complete sell into weakness while buying is more of a continuous event leading to some very serious selloffs and some over extended tops.

We're at a loss to make any good money in a 401(k) in a bear market. What we do know is that we need to be aggressively managing our accounts in a bear market. When prices were generally going up from 1982 to 2000, and possibly even into 2008 if you were in the right place, a buy and hold strategy worked ok. Yes, there were periodic big scares, but the market always came back and went higher. The past ten years have produced no gains for the SP500 and most of the gains that may be left in the 401(k) are probably the sum of contributions made in that period.

So, what can we do? In this market, we have concluded that there will be sharp rallies in this bear market which are the only times we want to be in the market. When the market is going down, we want to be in Treasury securities if we Know For Certain that the bond fund is investing in Treasuries or else be in a stable value fund.

How do we know when the market is going up or down ever??? There never is a view that gives total confidence but there are some clues that can help us. When people are generally bearish we figure they have sold so we want to be buying. We do need to answer the question about whether they are just saying they are bearish or if they really sold. Going back to the theory that human nature forces people to sell into weakness, they have already sold. The last five months have caused human nature to sell stocks. Our other tells are they are buying Treasury bonds and puts.

Sunday, February 01, 2009

No post this evening

We will be back on Monday evening.