Sunday, May 31, 2009

Market Pops in Late Friday Trading

Top Line: The stock market staged a 100 point Dow rally in the final minutes of trading on Friday. That move calls into question our position that we expect a drop in the SP500 to around 850 or so, but we are sticking to it for now, not withstanding our general bullish position that sees the SP500 at 1234 on 9-9-09.

[The Update is considering going on a "summer" schedule where we post once or twice a week. We are leaning toward a "Wednesday" Update where we would post on Wednesday evening so you could read it on Thursday morning. We have considered Sunday evening but think it doesn't allow for enough good information; in other words, Monday's can be quite different than one expects on Sunday evening. We are starting this week so our next post should be Wednesday evening.]

Our short term forecast remains that the stock market should work its way to the SP500 850 level in the next couple of weeks maybe three weeks. This would shake out the current late comers to this party. From there, the stock market should start its march to higher levels this fall.

There is an article in our local Sunday paper that caught our attention. The title is, "Take time to map out your money strategy", with a subtitle of, "Feeling lost about which direction to take with your investments? Write it all down." The article asks the standard questions like, "What are your goals for the money?", "What is your Time horizon?", "What are your liquidity needs?", "What is your tax strategy?", and finally, "What is your asset allocation, target percentages for those investments , and re balancing plan?"

We here at the Update, think these questions are a little off the mark but the majority of the world really still believes that one can answer these questions and be right or keep their assets safe. We don't think the reason for saving money should be any basis for investing. We don't even think your time horizon is a good basis for investing. In fact liquidity needs will take care of themselves if you are investing properly. Tax strategy??? Really, you think you should invest based on your particular tax situation??? And, the last question on asset allocation and re-balancing is our particular favorite. How can you make decisions on how to change your current asset allocation and expect That exercise will help your performance?

The market does not care about any of these things. The market is a continuous stream and it is always moving up and down and sideways. It doesn't care how you answer these silly questions, it is just going to do what it is going to do. You can either follow it or try to force it. It doesn't take much to figure out which one of these approaches will fail.

Most people tend to think that market timing is "luck" and not science, so they don't believe it can work. These people are now trying to figure out if they should Exit the market. These people think of themselves as long term investors that just need to tweak their "asset allocation" and everything will be fine but then they sell everything as the market is forming a bottom in March or even last fall in October and November. They aren't long term investors if they scampered away from those lows.

We have not always been right about timing but we have fared pretty well over the past year where the "long term" investor most likely lost a lot of money. This market is not for "long term" investors and will punish such thinking over the course of the next ten years or so. People have "learned" over the past 25 years that the market always goes up and all dips should be purchased. In ten years, all of these people will be out of the market after learning that such a course of action will take most of their assets away from them.

Such is the nature of bear markets generally. They punish the complacent bulls who just "don't have time to spend on their investments". Investors will forget the lessons of the bull market, which were buy and hold, as their holdings go up and down, mostly down. They will learn the bear market rules just in time for another major bull market shows up. As that market goes up, they will say things like, "I'm glad I'm out." Reliance on mutual funds or index funds will be a distant memory just like it was back at the 1982 start of the bull market when the Dow was below 800.

Thursday, May 28, 2009

Month End Strength is Waning

Top Line: The stock market is wanting to go down but the month end strength seems to be holding it up for now. Still, the early May highs near 8600 in the Dow are very much intact. We expect a couple of weeks of soft trading taking the Dow down near the 8000 level.

Today's highlight was the GDX which closed right at 43. We've been on this long journey through the 30's which seemed like forever although there were several trading opportunities if you chose to take them, which we did take a few. From it's low of 15.83 back in October, GDX crossed into the 30's in December for a quick double. Since December it's been trading mostly in the 30's until this past week as it finally jumped into the 40's. This long string of 30's should provide some significant support and has already served as a spring board to the 40's. What is next for GDX?

We think the gold will now show some strength following the GDX pop over 40. Right now gold is sitting just under some resistance around the $975 level. Once it gets through that there is some very tough resistance at the all time highs near $1033. That is not all that far away and we think that level is possible in the month of June. All of this action could take GDX up some more. We will keep a close eye on it since GDX represents nearly 50% of our portfolio now that it has outperformed the rest of the stocks we have.

The market was looking for the right direction all morning and most of the trading day. The Dow opened up strongly and ended pretty much where it started, up about 100. The market will not suffer much of a correction here over the next few weeks but some of this current bullishness needs to be eliminated. One way to do that would be for a brief drop below what is considered "safe" support say around 850 to 875 in the SP500. Look for that in the next couple of weeks.

The Treasury bonds were putting on a brave face today opening up but then dropping back to yesterday's lows once again. They did manage to pull themselves out of that low and close higher. Let's see what happens next. We think they are close to a short term low, if they didn't already see one today. The news is strongly bearish on bonds and this is causing us a moment to think like a contrarian. We would buy some if they would drop much more although we think the short positions we have are better...we could be wrong.

We considered the 2x funds and the new fangled 3x funds that are available. We do own a couple of 2x funds now, SDS and QID, but we know they are dangerous plus they do not work too well if the market goes against you while you hold them. Let's take a look at the way the 3x funds would trade versus just buying or shorting the underlying index on which these funds are based.

Let's say you wanted to get long and decided to buy a 3x vehicle. Let's say you're right and the underlying index goes up 10%. Your asset is a 3x vehicle and it should go up 30%. That's great and what you intended. But, if your index declines 10% first, you may have an issue. In this case your asset would decline 30%. Then let's say the index rallies 1o%, not back to the original but up 10%. The index had dropped from, say, 100 to 90 (10% loss) and now rallies to 99 (10% up from 90). What has happened to the 3x fund in the same period of time? Well, in the 10% drop turns into 30% so an asset would drop from 100 to 70 (30% loss) and then it rallies to 91 (a 30% increase over 70). Wow, the 3x fund lost money on the round trip where the basic index nearly recovered its loss??? Be Careful. See yesterday's post for the numbers on QID or take a look at the one year chart of the QQQQ's and the QID (use to the left).

Finally, natural gas got a spurt today as UNG managed to go up over a dollar. That was a nice move off the lows. The recent lows in May are higher than the lows in April signalling some strength. This could be a good performer into winter this year, possibly back to 30.

Wednesday, May 27, 2009

Wednesday Was Not Kind to Long Treasury Bonds

Top Line: The stock market tried to continue Tuesday's rally but couldn't hold it. This rollover is probably going to take us down to 850 or so in the SP500.

The situation is that the market wants to go down before it goes up. We are just waiting for another buying opportunity. We expect a couple more weeks of softness in the market and no real downside pressure due to the many people who are just waiting for some opportunity to get into the market.

Today's market featured another drop in the Treasury bonds. TLT, an ETF that tracks the long dated Treasuries, was down again. TLT traded near 97.50 just last Thursday and today closed right around 90.50 for a seven point drop in four trading days. This week the Treasury is trying to sell some debt. For some reason, the results haven't been too bad but the Treasuries have not fared well at all. Since tomorrow is the last auction for the week, we may get some relief in this extreme selloff.

In last night's post we mentioned the QID which looked like a terrific buy this morning under 35. The QID is a short fund that is supposed to be twice the percentage move of the QQQQ's. This type of fund does not perform well over long periods of time and this is evidenced by the price low today. Today's 34.72 was the 52 week low suggesting that the QQQQ's were at their 52 week high which of course is not true. Today the QQQQ's were at a high of 35.19 even though the 52 week high was back in June of 2008 just over 50.

To make this analysis complete, last year the QQQQ's were at 50 and today they are at 35. That means that the price is 30% less than last year. That should mean that the QID would be 60% more than it was last year when the QQQQ's were 50. Instead the QID is about the same as it was last year. Yes, QID was over 100 back in the fall when the QQQQ's were down around 25. What this tells us is that these vehicles need to be used carefully.

What we mean by carefully is that if you can get on a move then you can make twice the amount using these vehicles; but, you need to get out when the move is over. No, that's not an easy thing to do but we have at least warned you.

For today, we would have bought some QID but we had some trouble with our trading account, a very unusual event that affected many traders. Our goal for that trade would be to hold it through the drop that should be ending in June sometime. This trade would have complemented our SDS trade which is a two times short based on the SP500. Again, these are not long term strategies or hedges, just short term trades. They are Not for everybody. If you want to make these trades be extremely careful.

Tuesday, May 26, 2009

Strength Could Be a Good Opportunity

Top Line: The stock market liked the news on consumer confidence and pretty much ignored the 20% drop in home prices year over year. The Dow may now be ready to drop but with the end of the month this week, we may have to wait until next week.

Today's rally of nearly 200 Dow points gave investors plenty to cheer about. These are the things that send chils up our back. The public is bullish and a day like this encourages such thinking. The volatility indexes were down again suggesting this move was accompanied by a reduction in fear.

All of these point to a rally that is unsustainable in the short run. We still expect some more selloff as we go into June. The market is free to make it look good by rallying strongly but not being able to best the highs of the last couple of weeks. Yes, it could get higher over the coming days but today's move is just an attempt to get back to the May highs.

With today's rally, the opportunity to sell something is available but we still don't think it's the best course of action. Even with some more downside, who knows if you stocks are going to go down even if the market goes down? We prefer the selling be done around Labor Day not Memorial Day.

The commodities were not very strong today so most of our portfolio was average in performance plus we still have our short position which we considered exiting that position this morning but work got in the way. Hindsight says we would have been better off or we could have reinstated it later in the day. We are considering a couple of ideas for Wednesday.

Those ideas include the TLT, which is a fund of long dated Treasury bonds. The True Contrarian mentions them in his update for the week. The price is even cheaper at the end of trading today than it was when he mentioned it a few days ago. We might take a run at it for a quick trade, say a couple of weeks or so.

The other idea is to short the NDX by buying QID, which is the two times short equivalent of QQQQ. This would also be a short term trade and would be used to hedge our long positions in case of a down move which we think is almost inevitable. We are playing with a little fire because the market could jump here in spite of it being the center of the bulls attention. Plus, we don't really think there is much downside to be had so this trade would necessarily be quick.

Our recommendation to you is to stay fully invested and enjoy your summer by doing all the things you like to do which of course includes reading the Wednesday Update. Then if the market does come down, you can buy more of your favorite stocks. If it doesn't you can just smile and wait until it's the right time to sell.

Monday, May 25, 2009

Summer Starts

Top Line: The market seems to have some more downside potential. The next few weeks should be soft...followed by a strong rally.

With the Dow down about 150 on Thursday with a few more on Friday, our short position has been rewarded a bit. We don't expect a lot of downside but the current situation can be a profitable one or at least a hedge against our main portfolio.

This brings us to the main issue for the day, that of being bullish or bearish. We have been bearish for many years waiting for the kind of drop that we saw last year. Once that drop occurred we became bullish and have been for about seven months or so. Now, we are looking for the first harsh drop in the market since the March lows.

This switching positions seems to confuse a lot of people. When the readership hears bearish talk from us for a long time, they get comfortable with that position and expect to hear bearish if they come back. Now that we are mostly bullish, their expectations are not being met. The public has turned bearish recently and most of these people are now stubbornly bearish. Any negative talk aligns with their thought process.

We here at the Update think that the market dictates what we should be doing. If the market is going up, we need to be long. If the market needs to go down, we will certainly be willing to go short. That is what we know best. But, that is not the only direction the market goes. We are usually the early ones out of our positions which can be a problem but we always expect being early is better than being tardy when it comes to the market. Those of you that know us, know that being late in life is one of our trademarks but not when it comes to the market.

This is the problem with following the market, you can't always be bearish. If a trader always thinks the market is going up, they will lose all of their money when it goes down, against them. With our current positions being very long, we wanted to take advantage of this short term down turn but didn't want to sell our positions. So, in our trading account we put on some short positions.

Anyway, if you read this blog and wonder why what you're hearing much different things in the main stream media, that is by design. We use the main stream media as a contrarian indicator many times. When they are most bearish we want to be bullish (generally). This can include individual items in order to get good prices for our trades. This of course is not our only indicator.

Right now the market is soft because the main stream media convinced everyone the market was safe again. When they start questioning a further rally, we will get more bullish. Until then, we will be waiting for other indications.

Wednesday, May 20, 2009

GDX Breaks the 40 Barrier

Top Line: The market is ready to complete the pause we have been talking about. The final move here should bring the market down about 10%. Don't forget, some of that drop has already occurred.

[We are taking an extended weekend and with Memorial Day on Monday, we don't plan another post until Monday evening for your reading pleasure on Tuesday morning.]

It seems like we've been talking about a pause in the market's advance for a long time. The SP500 is the same level as it was about three weeks ago. That's a good kind of pause, one that doesn't have much of a price drop. The problem is that some price drop has to happen or does it?

We have been patiently waiting for an opportunity to buy some of our favorite stocks on the cheap, at least cheap at this time. If prices do go down a little we may have some desire to buy but we need to be patient and stingy.

Today we actually decided to take a short position in our trading account. This is not a recommendation to you but we do have our reasons for taking this position for a few days or weeks. We have been watching a few things over the past few weeks. The first red flag we talked about was the obvious bullishness. When you read headlines that indicate the coast is clear for buying, well, you know how we think...start heading for the exits.

The volatility indexes are the next red flag. VXO, the main index we follow, has been dropping hard for the last few days and still the market has failed to find its way to higher prices. The May 8th high of 930 in the SP500 came with a VXO of about 33 and today VXO dropped to 26.5 even as the SP500 could only manage 924. We even hear from the media that a drop in volatility indexes is a good sign that people have put some fear behind them...where are those exits again?

Of course, the red flags wouldn't have been complete without the last one...Treasury bonds were up on the day moving up with the stock market. Taking all of these things into account, as well as looking at the technical picture, we decided the rally today was a good one to short we did. We don't expect to be in these shorts to long but we thought we would disclose just how much we think this market is going down.

In the meantime, however, the market opened on Wednesday with a commodity blast. With our portfolio full of commodity type assets, we enjoyed a surge in values, especially GDX which blasted up to 41 within the first trading hour. GDX has been trading mostly in the 30's since the beginning of the year and has not been over 40 since last year before the drop. Now that it has broken the 40 barrier, we expect that the 40's should be GDX's home for a little while. If we do happen to get back down into the 30's, we don't think it will stay there long.

Have a great holiday weekend.

Tuesday, May 19, 2009

Waiting for Higher VXO

Top Line: The stock market had difficulty making any headway during the day and ended with a significant sell off. The market seems to want to go down. The next several weeks could give us some good buying opportunities.

The first thing we noticed was that the VXO managed to dip to 28 with about an hour to go. This was enough to spark a selloff. Here is where we see sentiment getting a little ahead of the market. Bullishness picked up a couple of weeks ago just as the market was peaking for this move. Since then the volatility indexes have continued to fall suggesting that the market is going up, too. However, that is just not happening. So, we see sentiment improving just as the market is about to drop.

What has managed to move up over the past few weeks is GDX. GDX traded near 39.5 today after trading around 36 two weeks ago. But, as the market faded at the end of the day, GDX fell as well. We were having a pretty good day until then. We keep wanting to see it with a 4 handle, maybe next week or maybe next month. oh well

The focus we have should stay on the coming drop in prices which may be here now. A couple of weeks ago the SP500 pushed up to 930 and that is looking more and more like the first wave top. We were expecting a little higher but the market has probably spoken and we need to listen. We have been talking about the Pause and we seem to be in it but the market keeps popping up giving a possible higher high but it just can't materialize.

The main reason we see that the market has been having trouble going up is because it's Supposed to be going down. We think that the buyers will show up at higher prices than most think. There are some buyers or bears that think the market will drop significantly from here but we just don't see it. Of course, we don't have perfect future vision as you well know but the market needs to go up and this down trend shouldn't be too deep. We would like to get some stocks at cheap prices, too but you may remember that we Did get some good prices on what we currently own.

Let's be careful about this drop that we don't do anything that we will regret. If we get some good prices we will be happy. We did notice that natural gas dropped below $4 again and may be something we want to consider again. Other ideas may emerge as the market drops. Remember that we want to see the volatility indexes jump back up, with VXO maybe going back into the 40's during this down move. Let's be patient.

Monday, May 18, 2009

Big Early Turnaround

Top Line: That didn't really look like more downside and that is the reason we say that surprises are to the upside. We still favor more downside to get rid of the excess bullishness but the market may have other plans.

Today the Dow gained nearly 3% and the other major indexes were up that much, too. These rally days are the reason we say that you should not touch your core holdings. Except that GDX didn't manage to do much, the rest of our stocks had good moves. We have already commited to these positions some time ago and they should serve us well for the coming decline and subsequent rally.

At any rate, the current rally could extend a little further as we finish up this pattern. From there we should see a small pullback into the late May early June period which could give us some good buying opportunities.

By the way, don't think that Lowe's was the main event on Monday. Lowe's may have got the juices flowing but it isn't enough to push the entire market up 3%. When the market goes up 3% when it's supposed to be going down, then the Market is the main event.

We had some family visiting this evening so the post is necessarily rushed.

Sunday, May 17, 2009

Back in the Saddle Again

Top Line: We definitely needed a break. The market is retreating somewhat, something we have called a Pause, and we needed a pause, too. Look for more downside in the market.

We saw and heard bullishness a couple of weeks ago and figured that the market needed to take a short break from its blistering rally over the past couple of months. We don't think this little drop will amount to very much simply because there are so many who still want to get in. We said that when the market went up it wouldn't allow people to get in. Until now, that has been pretty true with only modest pullbacks. Now, we should see enough of a decline to tone down the the bullishness (easily measured in the volatility indexes as they move up).

If you look at a chart of the TLT (an ETF that represents long dated Treasury bonds) you can see that it has crashed through its 200 day SMA (Simple Moving Average...use bigcharts to see the picture). Now, TLT is trying to regain that line which it may briefly do...or not. Whatever happens, the next move for TLT is pretty much straight down. This is a classic chart pattern that is at least ominous if not deadly. With TLT going down, that means interest rates would be moving up which is in line with our thinking.

As far as our positions, we think there will be a modest buying opportunity that develops over the next few weeks as the market drops a couple more percent. Some of the stocks we are in tend to move a little more than the general market so excess downside can provide some good opportunities in these stocks. As we get closer to the end of the month, we will see what stocks make be good buys. As you watch your favorite stocks you may be able to pick up a couple more shares if they drop.

Gold has been holding up pretty well into this stock decline/bond rally. In fact gold has rallied about $50 in May so far. GDX has been a beneficiary of the move in gold as it too has rallied nearly 20% in May but has faltered a bit over the past few trading days. Since it is a large portion of our portfolio, we watch it very carefully and we are looking for 40's in the next few weeks. We have said this before, yes, but sooner or later it will happen. It may be headed much higher so a stop in the 40's is required.

Just a quick side note: We went to see the new Star Trek movie today...very good flick.

Tuesday, May 12, 2009

Time for a Break

Taking a break...we'll be back on Sunday evening.

Monday, May 11, 2009

Conflicting Indexes May Mean More Downside

Top Line: Stocks trade heavy and seem to want to go down at least a little. The downside leadership in the NASDAQ indexes was not evident on Monday as the NDX (NASDAQ 100) was up on the day.

The bullishness is pretty thick these last few days which should be a lid on this rally we've had for two months. That's how it works. The market is disdained and then it rallies without much notice. Now that it's up over 30% in a couple of months, everyone is bullish or nearly so. These are dangerous times to invest new funds. When the media convinces people that the rally is for real then the public can come in and buy stocks from the professionals. It's an age old tradition.

Right now we are walking a fine line between selling and holding our positions. The drop we expect doesn't have to be much but it should substantially reduce the current bullishness that has popped up. With the Dow down 155 today the volatility indexes didn't go up very much which is somewhat disappointing but it probably means that more pressure, in terms of lower prices, will need to be put on the new bulls who just bought.

We would be looking for bargains in the next few weeks to a month. The drop here should be enough to make people scared again but we don't think the prices will go much more than maybe 10%. This could be our drop that we were thinking about a while back. We thought the Dow would get up to 10K before bullishness would pick up but it may be now.

Our play will be to not touch our long term holdings for now. We do like to trade a little so we may do some of that over the next few weeks, both long and short. Stocks should give us plenty of opportunity for volatility trades where whipsaw action is likely to steal some money from many traders. Surprises are currently to the Upside and will be until later this summer or early fall.

Sunday, May 10, 2009

Jobs' Report About What Was Expected

Top Line: The stock market continues to hold up even as bullish enthusiasm increases. This is a dangerous development and we expect a small correction coming up soon.

The jobs' report was indeed greeted by a higher opening on Friday which was sold hard and then the buyers came back in, at least in the blue chips (banks especially after the stress tests results were released). This is a classic head fake we talked about in our last post...however, the double head fake was a little unusual. The NASDAQ indexes didn't come back very far from their selloffs as compared to the runup in the blue chips...a red flag we mentioned last week.

The volatility indexes were weak again on Friday indicating reducing fear in the market which is a bearish development to add to the list of reasons for caution in the near term. As we have said, we do not think you should do anything with your long term positions but right now we would not advise buying anything, at least until prices came down and gave us a better opportunity.

In our trading account we have some GDX but that's all. The rest is in cash and is waiting for a good opportunity. All of our stocks in our portfolio had very good runs in the past couple of weeks and extremely good runs since the early March lows. We still do Not think this is a good enough reason to sell them.

We see the VXO, volatility index, coming down but only to the low 30's. This is not a reason to sell, more of a reason to Not buy. If the stock market now drops a little and the volatility indexes move up strongly, then we would be eager to add to our long positions. If not, we would be starting to look at the recent bullishness and need to move up our timetable of selling...that is a bridge to cross another day, after the stocks decline...if they decline.

Right now we think that stocks could come back down just in order to reduce the recent swelling of bullishness. People are starting to talk about the market in a positive way again and are probably getting confident to buy. These are red flags to us contrarians. But, while we expect a modest selloff here over the next few weeks, we do see higher highs coming in the next few months.

Thursday, May 07, 2009

April Jobs' Report May Produce Head Fake

Top Line: The pause we have been discussing is in progress. We expect more downside over the next week or so, especially with options expiring next week.

Our position is that the jobs' report will trip up several traders. The futures are higher this evening with many expecting the number coming tomorrow to be better than expected. This has the possibility of running prices up into the number and then falling for about four trading days. We are looking forward to the possibilities.

As we mentioned, we don't expect you to do anything with your long term holdings. If you don't think you can handle a drop in prices this soon, then you may want to reduce some of your stocks but this is a dangerous tactic for many reasons.

The market turned on a dime this morning as it peaked with the CSCO news on Wednesday evening (the news wasn't really all that good but the traders were hyperventilating over it). We went into bear trading mode as soon as we saw the huge opening. Of course, the immediate reversal gave us a very nice quick bear trade and we are hoping for another one on Friday morning.

During the afternoon, the Treasury bonds took a hit right after the 30 year auction was complete. By the end of the day the long bond jumped 25 basis points, or a quarter of a point. This is a big jump for one day and it may be just what we were looking for in this market to put a short term end to the selling, or more appropriately, the hemorrhaging. In terms of TLT, the price was 123 in late December and it traded into the 94's. Maybe we can get a little rally out of the bonds while the stock market lets some air out.

As we get into next week, we will be re-establishing our long positions in our trading account. At least we think next week will be the time. We will of course watch for good prices in our favorite stocks.

Happy Mother's Day

Wednesday, May 06, 2009

Reversal for NDX, Another Pause Warning

Top Line: The stock market moved up but grudgingly so. The NASDAQ Comp barely eked out a gain at all while the NDX (NASDAQ 100) was flat as a pancake, up four cents. The pause may be here.

The market participants are getting braver. They see the stress tests and are not bothered by the possible results. They see the jobs' report coming on Friday and then see the ADP report that job losses were much less than expected so are confidently buying stocks. You know that kind of thing makes us Very nervous. So nervous are we, that we took some profits today in our trading account. No, we didn't touch our long term funds but we may sell some of those if we get even better prices.

With the T-bonds holding their own and the volatility indexes sliding even on selling, we felt if would be best to take some profits. In the last four trading days our trading account was up 35% so we thought it was time to exit some of our positions for a few days. We like selling into strength and will now wait for a good buying opportunity which may not come but if it does will be in a weak market.

As we look out over the next few trading days, the news, as we mentioned above, could give us some strength going into Friday morning. If it does, we may sell some of our long term holdings but, again, it would be a temporary sell. The past two months have given our portfolio a strong lift and we need to be patient with the gains because there should be a lot more to go. Consider that the SP500 is just barely over 900 and we think there is another 300 points Plus to go, about the same percentage move as we have seen already.

We're not saying that you should do anything at all. We just think that we had to sell into this strength with the move we have seen in our trading account over the past few days. The market will do what it wants to do but the indications we have seen in the last few days give us pause.

Looking at the NDX, we saw a big opening this morning with the index jumping 1% at the bell probably heavily due to the ADP jobs report. In about an hour, the NDX was sporting a Loss of 2% so there was a big selloff from the early morning highs. This was the low for the day but with the Dow up on the day, the NDX was giving no good confirmation of the move.

Meanwhile, our commodities stocks were pretty hot all day. Since we still have a job (that sounds like a bad thing in this context) we have trouble trading but on the way into work we did figure that we would need to put some sell order in due to the strong opening. Unfortunately, our stocks kept going up after we sold them but not a lot. Anyway, we are hoping to buy them back at better prices over the next two weeks. Anyway, we have the same stocks in our long term accounts so those accounts got fatter after we sold our trading account assets.

The thought we have is that the jobs' report will present a selling opportunity on Friday morning but next week is options' expiration and should force a bit of a selloff. When stocks are strong going into the week of options, the large players make sure that their positions don't get hurt too badly, if only for a few days until options expire.

We will wait for a good opportunity to buy back in...and hope there is such a thing next week.

Tuesday, May 05, 2009

Market May Want to Pause, Too Many Eager Buyers

Top Line: The stock market took a little breather today after the run up we've seen over the past couple of days. This could be setting up for another run or for more breather. Only the market can tell us that. Maybe the traders were just celebrating Cinco De Mayo.

We want to concentrate on the near term direction of the market. Our favorite indicators are telling us some things this evening and we should be heeding at least the warning in the short run.

First, we have the volatility indexes which went down during today's breather. This is not the direction we wanted to see if we are bullish. Volatility should go Up when markets go down, not down, but we don't want to read too much into this one day blip...but there is more.

Second, the Treasury bonds have stabilized over the past couple of days which could proceed a bounce. With a bounce in Treasury bonds, that means that money is being sent over to that market and less is going to stocks so, at the very least, they suggest some near term caution in the stock market.

We could be setting up for a short term drop that could take a little wind out of the bulls sails so we want to be ready for buying opportunities that may pop up. And, for us, we want to be tuned in to the possible trading opportunities as well.

For long term assets, we don't recommend making any changes since this could just be a couple days or a few more of consolidation. If it gets to be more than that, then there may be some buying opportunities.

The futures are down this evening which could lead to a down opening. This could be all of the downside we get with a burst of power coming out of that. We just can't be sure this evening. The market does like to give buyers some confidence (just like all con artists) so they will come in and buy just before the sellers come back in. That is what seems to have happened in the past few days.

Just so you don't forget our stance, we are very bullish through the summer and into the fall. Any short term drop should be used to buy more stocks, be opportunistic. Any selling you may choose to do should be into strength and you should take steps to buy your positions back with any sell off that may occur after you sell.

It is just way easier to stay the course and let the market scare the bulls and scare the bears. When there are no more bears, we will be Sellers but there are plenty of skeptics out there right now and the market has a long ways to go Up.

Monday, May 04, 2009

A Very Good Day

Top Line: Monday was a good day. The market is in a strong move and should continue for some time.

With gold over $900 Again, GDX performed well, up about 6%. The rest of our portfolio was up, too, with coal being the major winner of the day.

There is little to say this evening as we go vertical in this rise. Recognition should hit the stock market as it did in many of the commodity names on Monday.

We have been trading over the past few weeks but we think the power of this rally should be significant and we may stand pat...but then again, we are traders at heart. We didn't sell anything in this strength today so maybe we have made a slight error in the short run. Only time will tell.

We started our last post with a flat line until the employment report on Friday...but we always need to say in this environment, "Surprises to the upside". As the market goes up, people are still not convinced that more is coming. Soon, many will believe and pile in pushing prices up. The media is still skeptical which keeps us strongly bullish as we have been for quite some time.

On Monday the VXO, volatility index, closed at its lowest point all year but it's still a chunky 34+. While there could be a drop in the market, we would expect a bounce in this volatility index to keep us bullish. We don't really want to think too seriously about selling our stocks (other than our trading positions) until the VXO gets into the low 20's and even then, we would just be thinking about selling them.

Sunday, May 03, 2009

T Bonds Down Again

Top Line: The stock market's broader indexes were up modestly on Friday. The action on Thursday was somewhat negative as the market was up strongly in the morning but couldn't hold those gains. The near term could be flat to down as we head into the employment report. In the meantime, the Asian market as well as the US futures are up this evening.

While the broader market struggled on Friday, our portfolio came to life with natural gas having a decent day for a change. Natural gas has been going down what seems to be every day so when it jumps on any given day, we get a little excited. We had purchased some more of it during the past week so were delighted to see the strong rally on Friday. Now, we would like to see a little more over the coming days, weeks.

As the title of our last post indicates, Treasury bonds are the news and they have pretty much dropped every day for the last two weeks. That means that interest rates have risen appropriately along with them. Last week, TLT broke below 100 and fell into the 96.50 range as the week ended.

TLT has a 200 day SMA (Simple Moving Average) just above 101 and on Friday the 24th TLT dropped below the line and then closed below it. The next couple days, TLT tried to regain that 101 line and it did at the opening on Tuesday the 28th. But that day ended up being an outside down day as TLT closed sharply lower after failing to hold that 200 day line.

[What is an outside down day? That is when an asset trades above the high of the day before and then closes below the low of the day before. On Monday TLT traded between 101.19 and 100.06 closing at 101. On Tuesday it traded at 101.58 early in the day and then traded down to 99.09, closing at 99.35 well below the lows on Monday. Normally this is a bearish reversal and indicates further downside action.]

The 200 day SMA is still rising slightly for TLT so there will be a tug for it to come back up at some point but once the 200 day line turns down, TLT will be heading down strongly. We are bearish on TLT and have been for some time.

GDX continues to underwhelm but we do think that it is about to run up over the next several weeks. GDX is very undervalued compared to the price of gold. This represents a good buy down here in the low 30's. If the price drops over the next week or two, it would start to scream at us to buy more, even though our portfolio is heavily invested in GDX already.

Please check out the True Contrarian. He has a new post as of this evening and he is strongly bullish on GDX due to his inflationary expectation.