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...