Tuesday, June 16, 2009

Two Triple Digit Dow Drops In A Row

Top Line: The stock market suffered two triple digit declines this week while the T-bonds were strong. Expect similar action to continue for a couple of weeks, with some intermittent rallies to throw the bears off course.

[We are on a Summer schedule and plan to post twice a week, normally on Wednesday and Sunday evening. We have a conflict on Wednesday this week so we are posting on Tuesday instead. Our next post, unless something noteworthy happens, will be Sunday evening.]

TLT, our favorite long dated T-bond equivalent roared higher today. From last week's low in the mid 87's, TLT rallied to close at 92.36 near the high of the day. This gave us more confidence that the stock market would continue down both today and for the near term.

GDX has dropped about 15% and traded in the high 37's the last two days and we bought some of our position back. We don't know how low GDX will go but we thought a 15% down move was enough to justify getting back into it. We didn't get the absolute high a couple of weeks ago but we did sell half of what we sold very near 45 with the other half around 43. Purchasing below 38 makes some sense and if it gets below 37 or 36 or even 35 we will be adding more to our holdings. GDX's slide has given us some more confidence in the continued stock market slide since it has been leading the market in recent months.

The volatility indexes have started their trek up to the 40 range at which point we will be aggressively buying back the stocks we sold, other than GDX. We plan to be buying GDX back first since we expect it will bottom first. The volatility indexes may not get back to 40 but there should be some fear in this decline due to the bullishness out there over the past few weeks.

We have talked to a few people over the past week about trading their accounts. Apparently, there are some people who are getting eager to sell since the market seems to have topped. Our advise has been to stay put and try not to worry about this pullback because you don't want to be out when the market gets going again. That could happen in a very short time and you don't want to miss the initial rally phase.

As of today's close, the time to sell is nearly over since we have almost dropped half of the distance we expect to see. The continued drop is almost assured but trading in retirement accounts like 401(k)'s and 403(b)'s can only done at the end of the day so you may not be able to get out and back in with perfection in your timing.

We have been telling you what we are doing and on some days we can't get the information to you fast enough to act. We have been doing some wholesale moves over the past week in order to step aside for about a 10% down move. Since our ETF's are mostly based on commodities, they tend to move more than an SP500 index fund. They provide much greater percentage moves than a standard index fund. Like we mentioned above, GDX has dropped 15% already while the SP500 has only dropped about 5%. We can more easily trade GDX at that kind of volatility where trading the SP500 is much tighter. Plus, in the retirement accounts you can't trade during the day.

By the way, good job for those of you who contacted us. We are glad to hear from you, yes, but more than that, it shows you are starting to watch your portfolios and have a greater interest in what happens. You're taking control of what happens. This is a good thing.

We are a little crazy with our trading in this time period due to the opportunities that are created. We are trying to maintain a level balance in our portfolio while bettering our position. This is a delicate balancing act but we are hoping to own more of the stocks we used to own. As things are today, the stocks we sold have dropped about 10%-15% including our GDX.

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