Waiting for a Low to Appear

Top Line: The stock market staged a strong comeback in the final half hour of trading on Friday; but, as far as last week goes, the trading was down and down hard. We are close to a bottom both in terms of price and time. Take advantage of your favorite stock's low price.

The main event this year will be a major stock market rally. Based on the bearish press we read and sentiment in general. These are great times to be a contrarian and pick up the bargains that are left out there by those who want to sell into this weakness.

We generally try to follow our motto which is, "Buy low, Sell high", but sometimes it just isn't that easy to do. The current environment is so cloudy and grim that it's difficult to see the direction the market wants to go. In any event, it is still important to buy low which is certainly prevailing in the market place at the current time.

We have been following, or should we say owning, GDX for a long time and purchased it from about 30 down to the high teens last fall. Certainly, a price in the teens was a good one but the low was in the 15's and that would have been an excellent one. How can you buy which stocks are dropping everyday? The way you do it is not to buy everything at once.

We have not been very patient ourselves and have resorted to putting as much extra money we can into the market as we can. We should have been more patient. We didn't know what the low was for GDX but we kept on buying until we had gone slightly over our comfort zone for the amount we wanted to own. Then of course we saw it rise into the end of the year giving that protion of our portfolio even more glaring excess. All things being equal, all of our stocks would have gone up about the same amount and together. As it turned out, so far, that is far from the truth. GDX has been our early leader.

We thought GDX was a good buy earlier last week when we saw it drop back under 30 briefly, or anywhere near that level, but tonight it is back around 33 which is a 10% jump in a few days. That indicates it's probably no longer a good buy. We mention these details for you to apply some of these thought processes on the stocks you are watching.

According to our view of Elliott wave, there should be one pretty good bounce followed by another drop to "complete" the down pattern. Those moves might not allow you much time to make decisions about buying so be careful. The window for buying is quickly closing. Once the market heads up, there will be a powerful rally. Recall that that has been no such rally for over two months. This action almost assures us there will be a major rally out of this upcoming low.

We did think the jobs' report could have been an inflection point but the news wasn't bad enough so the market couldn't "over-react" like we wanted to see. There was a bit of a rally out of the news on Friday morning but it didn't last long and the market sold off all day until with 30 minutes remaining it sprinted up. This is interesting action in front of a weekend. Either there were some nervous but profitable shorts that wanted to take some profits or it was the start of our little rally leg. Monday will give us some better clues, hopefully. Until tomorrow...