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.


Diane T said...

I'll be checking back for pictures of 1yr old Jackson and you in Hawaii. !!

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