Monday, April 20, 2009

Big Down Monday

Top Line: A down day provides a scare to the new bulls out there and gives us another chance to buy. If we get more downside in the coming few days, we may do some more buying.

On Monday, the market decided it was time to go down. We do Not believe any news item drove this behavior in spite of the headlines which indicated that the world was worried about the banks. It's true that the banks sold off strongly but other stocks were down as well. We think the bullish trade was a little crowded so the market went down.

How long will this last? Our opinion is that it won't last very long at all. The selling was pretty strong today and we don't need too many days like this to get prices to attractive levels. Several of the stocks we follow seem to be at buying opportunities now...not as attractive as they were over the past several months but good enough.

As we mentioned, we purchased GDX on Friday which turned out to be a good move at least for today as it was one of the only ports in the storm in the stock market. Gold and silver were up today on what the media called flight to safety. Platinum and palladium were down hard though so we're not sure what the real story is. The dollar was strong today which should have hurt all of the precious metals.

The biggest mover seemed to be oil, down almost 10%. The volatility in oil has given many opportunities to fail or to make a lot of money. Trading has been the only thing to do in that market with violent swings. Still, the lows down in the mid-30's still seem to be solid.

The volatility indexes were up strongly today just as we expected with the market down sharply. The fear picked up today as the sellers dumped stocks or bought puts to protect their positions. The VXO jumped but failed to stay over 40. Our confidence level in the rally gets a boost as these volatility indexes move higher. Eventually they will come back down and this will be caused by a rising stock market, therefore confidence will replace fear. Or maybe the fear will change to fear of missing the rally.

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