Wednesday, January 06, 2010

Stock Market Top Very Near

Top Line: OK, we couldn't resist posting one more time. What with it being a new year and the market just floating, there needs to be some discussion about the potential of both.

In our Last Post, we said that the market would be lower in two years. Here we are after about six weeks and the market has tried ever so mightily to muster higher prices. With the new year, people seem to think it's a good time to buy. Well, that worked for the first trading day of the year. What has happened since? Not much, but that's why we're back for another post.

The primary reason for the post tonight is to talk about the stock market. As our title says, we think that the market is very near a top. It is that time of month when the whole world looks to the employment report which is due out on Friday morning. There is a potential for the job number to be near zero for the first time in a loooong time. We don't think this is particularly good but it does Look better than the previous months.

If the number is positive, we expect the media to say basically that the world can stop worrying, the problem is solved. This is a direct invitation for stock buyers to come in Again. We expect that the market to enjoy a last rally on this news.

In fact, we expect the high near the time of the report to be the highest level in the Dow for...well, lets just say a long time. The market is overbought and investors are very complacent even though the market has barely managed to get back half of its losses over the past couple of years.

We think that the stock market is once again thought of as a safe place for investors. We couldn't disagree more. There is always a chance that the high is still 10% higher than we are now. We have to allow for that possibility but the timing of a high coinciding with the jobs' report seems like a reasonable thing from our view of the situation.

Take a look at the gold market and the mining shares. As we mentioned in November, these classes have suffered a setback and have somewhat recovered with the rally of the last week or so. Take a look at GDX and you will see your market leader having trouble getting back above 50 when it was around 55 about a month ago.

The dollar has jumped back to life and is probably at the beginning of a major rally. No matter what you read, the dollar is said to be headed to Zero in spite of the huge rally it has experienced over the past month.

Meanwhile, the Treasury bonds have come back into a very nice buying area. We like the TLT as you know and today it was trading under 90 and nearly under 89. TLT could find its way lower into the jobs' report but the price should be close to a low that will last for a while. We would say the buying range here should be below 90 which it is. We want you to get as good a price as you can so don't just buy this all at one time, ease into it. You may want to enter the trade as early as Thursday, late in the day, or early Friday morning. Then see what happens to see whether you can get better prices over the next few weeks. Then, just sit back and enjoy the 4% yield and possible 25% capital gains over the next year or so.

Now, Treasury bonds are getting the same bad press as the dollar, maybe not quite that bad, but this makes them even more ripe for purchase. This is the best buy signal you can get...unanimous negative press. Yes, we are still contrarians.

We were going to write last night but time got away from us so here we are today. If you have mutual funds or 401(k) funds that are invested in stock market securities, this would be an ideal time to be getting out of those funds. Keep your cash for a while and watch it grow against the stock market decline.

If you are in individual stocks, you have a different set of issues. You may have missed the top in that stock or it may still top in the near future. We can't judge that without more information. What we can say is that if the stock you own has failed to participate in this latest rally, we would be inclined to say that it is probably not going to perform too well near term. If it has rallied, then you may find a better time in the next rally or two, but now is very nearly at that level anyway and should offer pretty good prices.

If you have stocks that you think will go back to the 2007 levels, then you may need to take a good look at that over the next few days and weeks. If they don't go up, then you may not see them get back to their old highs any time soon.

We are compelled to do this Sell call right now which is why we are writing again tonight. We just can't help it. We're not sure when we'll be back. Take care and have a great year.