Monday, March 02, 2009

Low is Getting Closer By the Day

Top Line: The market took a trip South today and easily broke through the 7K line. Clearly we are closer to the low than we were last Friday.

There are a lot of bears jumping on this move and bulls, too. When everyone seems to be selling, the market is nearly done going down. Yes, it's tough to hold your ground especially if you rode the market down from the highs of 2007. This last down move is going to shake out the last of the sellers, for now.

In Elliott wave parlance, we are in a fifth and final wave of this large initial selling wave. The market needed to "complete" itself and it is now doing so. Sellers are coming from everywhere just trying to get out. We like to call this capitulation selling. Normally, a capitulation sell can gather some serious steam to the downside and today's 3oo point drop is definitely part of that move. Of course, there is that other thing we talk about once in a while...oversold conditions are the perfect setup for a fast selloff sometimes known as a CR....we can't say that word here. We think the market has defined itself very bearishly and we Now Need a Rally...

Even with the new lows in the blue chip indexes, the NASDAQ indexes are still above their respective lows from last fall. The Russell 2000 did succumb today and it is possible that the NASDAQ indexes will need to put in a token new low as well. This could be a very quick move down following some upside here in the next day or so.

The overnight market this evening is strong for US futures and indicates a strong opening on Tuesday. This doesn't necessarily mean it will actually play out but the timing of a quick rally here is good. As just mentioned, that should be followed by another drop which we would consider to be the Last drop of this move. That should be followed by a strong rally.

We want to concentrate on that last sentence. The rally that develops out of these lows will not leave any doubt in your mind that the market is going up. A little 100 point Dow rally is Not enough to suggest that this first phase of the bear market is over. We need to see a huge burst of power from the lows that should come in the next few days or weeks.

We wanted to mention the GDX this evening, too. We see that it was down over 2 today begging the question, "Is it a buy right now?" What we would say that gold has only dropped about $75 from its highs and the miners have been smashed, about 20%. To us, that type of move suggests that gold may have further to fall. Certainly, we expect GDX to move up to at least 55 so when you get a good opportunity to buy it after a 20% pullback that is a gift. We don't think you need to get too cute here because prices are low but if you put some orders in below the market you may get filled in the next few days. GDX is a volatile vehicle and can move 20% in a very short period of time.

As for other opportunities, there are plenty but the question is what is a good investment. We have mentioned that we have entered some energy trades and today these assets were reduced by a lot so to us they are certainly good buys, too. We failed to mention that we have been in coal producers which with precious metals were the two top declining classes today at losses of around 15%. Ouch, but good for new buyers. Oil dropped about 10% today giving the energy sector some additional trouble.

Right now, we think there are so many bargains out there that you can hardly make a mistake on your entry point over the next few days. We mentioned SSO a while back and at that time we said if you could get it under 21, it was a good buy. Well, today, it closed at 15.75. That is a steal. SSO is a leveraged SP500 vehicle that you should look at or ask me about before you invest. Still, even if it gets back to our 21, that's a 25% move. We sold it near 26 back in late December.

Long post tonight and no new pictures...we did add one of Jason to yesterday's post.

BTW, DT, we just saw your comments this evening and are glad you are enjoying the pics and also getting back into the market. For the next few months we will be "correcting" a 8000 point Dow move. Just a 50% correction would give us 4000 points from here back to 10,500 plus. Happy buying. Those crazy 401(k)'s are so tough to make any money. You don't really know what you're getting. It's sad.

One last item...Warren Buffett's letter to shareholders is always a good read, every year. [Editior's note: To read it click on the link and then click on 2008.] We were hoping to recap some of his great lines here tonight but the market needed our attention. Maybe tomorrow. In the mean time enjoy the letter. He discusses several topics that are near and dear to the Update...especially housing and mortgages.

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