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.

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