GDX Review

Top Line: Prices are still cheap...

The stock market is training participants. Every time the market bounces, sellers come in so everyone is learning to sell every rally. This is the market's way of shaking out weak hands, this time.

Tonight the market still seems to want to go down some more. There is this pull to Complete itself...Jerry Maguire style. We did get another chance to buy again today. We had another 12 cents in our account. Maybe once we get this rally, we can keep a little more cash on hand for these bargain prices.

We thought we should talk about GDX this evening. Gold has enjoyed a very strong rally over the past few weeks and GDX hardly moved up at all. Now, over the past few days, gold has dropped pretty hard and GDX has moved down until today. Today, GDX was up inspite of gold being down.

The way we see it, there are two angles. The first is that we think the mining stocks move in front of the metal, at least that's our contention. Looking at the last six months, gold and miners have moved together but the miners have moved in front of the metal itself. As gold rose in the past couple of weeks, it was Not confirmed by the miners. There was also the temporary blip over $1000. This kind of thing gets people excited about the possibilities.

Since we watch the miners and they told us that we should not expect gold to rise much, we are not too surprised by the down move. What does this imply for the miners is what is most important to us. Since the miners don't have a tell that we know of, we have to go to the second angle. That would be the subtle fact that the miners are undervalued compared to gold itself.

If you go back to last year when the miners and gold peaked, you can see the difference from today. This past week, as gold pushed above 1000, GDX traded in the 37 range. Going back to March of 2008, when gold moved above 1000, the GDX was at a price over 55. It is our opinion that GDX is 40% undervalued according to the price of gold. Yes, 55 is our minimum target.

We have started to consider the possibility that the market is going to wait until next week's jobs' report. We don't like waiting another week but it is a possible turning point. There are other possible turning points such as this is the end of the month. Either way, we will be patient...oh we really don't like this waiting stuff. Oh well...here are some more pics while we wait.

The Luau...

The Crater at Haleakala...this is a pre-dawn sequence...

This picture had a 13 second exposure time. There was a car on the road and, since it was so dark, the exposure time allowed the car to travel all the way through the shot. We thought it was worth sharing.

You can start to make out the crater in the higher light. The clouds are down in the crater, just to the left of center.

Now, you can start to see the sun paint the top of the clouds.

Haleakala is home to the Haleakala Observatory housing several telescopes. This sight is said to have the fourth best conditions on the planet.

But really, there are no people in the pictures so we need Jackson and others back...

For more pictures you can use your favorite search engine. The mountain is 10K high and you can see a long ways and all 360 degrees.

And, maybe one more whale shot...one of our best ones. You can see Haleakala rising above the clouds in the background.

Lack of Confidence in Banking

Top Line: The market seems to still be bottoming. The next move of significance should be a violent one in the northerly direction.

The stock market doesn't know what to do with all of the information it's getting. The news seems to be bearish because an end to the economic situation appears to be getting further away rather then closer. When the whole world is anticipating a major meltdown, the logical outcome is a sharp rally.

Since we expect a sharp rally developing any day now, this would be a good thing and we feel confident to be long. The extreme selloff we have seen over the past couple of weeks also supports our confidence. This week has been a little tough on our portfolio but it's in much better shape than it was back in late November.

We are now being, or should we say, trying to be, patient waiting for the rally to begin. The positions we purchased in the last few weeks have been at pretty good prices. We purchased a small amount today in fact. These purchases look cheap even now but they should look dirt cheap by the time this rally is over.

In the news today, the one that moved the market could have been the one that talked about stress testing banks. The idea is that the banks need to see what their capital looks like if unemployment moves up and home prices drop more. We're not sure how this information would be used but it may get at the kind of exposure some of these banks have.

We have considered that this entire situation is a lack of confidence. Treasury Secretary Geithner mentioned that he thinks the banks are responsible for creating a lack of confidence in the banking system. The problem is how to restore that confidence. That is the market's focus in the short run...or at least that's what we think is it's focus.

More Hawaii pics...

Starter Rally

Top Line: The stock market posted a surprise rally exactly as people have started to give up. These lows won't hang around long.

DT left us a comment for more pics and that's what we were working on tonight. This takes some time as the photo finger snapped about 750 pics with only a few worthy ones. But, more to the point, DT says she is going to be buying at the stock sale going on right now. Go, DT.

The prices in the market are compelling for many reasons, many of which we have detailed here over the past several months. Now that the market has "put in a new price low" which satisfies the Elliott wave theory, we can get more comfortable in our long positions; or, do as DT is doing and buy some more. We keep looking for more ways to buy these cheap stocks.

In yesterday's post we said we wouldn't be buying any GDX but today's price drop there brings the price down to a level that is getting interesting again. We see that it is just above its rising 50 day SMA and could easily bounce off that line. (Check Bigcharts.com and go to indicators and select the SMA 2 with 50,200.) The 200 day line is flattening and with another push above that line by the stock, it should start to turn up...very bullish. We are looking for a price at least as high as last year's high in the mid-50's.

Otherwise, we are now prepared to sit back and let the market go up. This is going to be more difficult for us to do than anything. As the market has moved lower, all you want is for some upside and now when you get it you have to resist the urge to sell into the first rally. There is much more to come over the next several months and we would hope that together we can figure out a good place to exit.

In case you were wondering, we will be early on the way out. We're much better bears than bulls so we will be getting into short positions too early and going through the same pain we've gone through over the past several months. Oh well, hopefully it will be after we have doubled our money.

We leave you with a couple more pics of Hawaii.

We celebrated Jackson's first birthday in Hawaii...too bad he won't remember.

Great cupcake cake.

Aloha to the cake...

Jackson can't wait for Mom to blow out his candle, that cake looks too good.

He's off to a good start...

Now, we're getting the hang of this cake eating thing.

Boy oh boy is that good!!!

Maybe just one more bite and that really has to be the last bite.

Price Low Here???

Top Line: Another new low in the Dow today...yes, continue to buy.

We may be in the best buying opportunity of the next couple of years right now. For those of you who haven't deployed all of your funds, these prices are compelling but what would you buy?

There may be some upside surprises in the financials but we think there are other places to find some possibilities. We continue to think the energy area is a good place. There are many ways to play this area but try to get good prices.

Gold has given us pretty good leadership for the energy commodities as well as their producers so we look forward to higher prices later in the year from this sector. The volatility indexes are in the 50's again giving us greater confidence that this dip should be purchased. Monday was tough on our portfolio because most of what we owned was down but we did have a couple on the upside to balance it...not by much.

What may happen? We took a look back at our January 21st post where we asked the question how low the market can go. In that post, we made a simple Elliott wave "guess" how far the market could go down if it wanted to and came up with about 7000 in the Dow. At least that was the target for that day and it looks like we have come near that today. We didn't like the idea last month but here we are and more buying opportunities exist.

The major headlines are very negative and sentiment has quickly turned negative, too. These are sweet music to contrarians who want to go the other way. As the market closed today, the evening session came back a little but that does not provide certainty for a turn around. There could easily be some selling in the morning, possibly strong selling due to these very negative headlines. The fact remains that we are near an Elliott wave end with a fifth wave nearly complete. This is not the time to be getting cold feet and selling your positions. This is bargain basement time for some oversold stocks.

We do Not recommend buying gold mining stocks like GDX at this time. Even thought these stocks could go up quite a bit between now and the top of this move, there are better opportunities. How are those stocks that you keep an eye on? Are they looking like great bargains? Or, do you need to find other places? Maybe you are like us and are mostly in. These are the sad things about not having some cash around...can't buy these great prices, at least not much.

Yes, DT, we know why you're here, Jackson pics. We just want to point out that here are three pretty important guys and notice that there is no Snow. More pics the rest of the week...

Here is one of the whale shots...there will be more...yes, Jackson, too.

Market Wants to Turn on the C News

Top Line: The market continues to provide good buying opportunities.

Yes, we're back in the saddle again...in the two weeks we've been gone, the market has decided to continue in the down direction. Friday's Dow close was the lowest since 2002 breaking below the November 2008 low close, however...

You may have noticed that the SP 500 failed to break through its own November low and that the NASDAQ indexes are well above their late 2008 lows. The Russell 2000 index has not found a new low either. These are prime non-confirmations of the Dow low and give rise to some of our favorite thinking processes. When the Dow moves ahead of the rest of the indexes, that is a good sign that the broader market infantry is not following the generals leading to a reversal.

There are other significant signals that this may be true. The first is the volatility indexes themselves which have moved into the 50's. This is a good buy sign as we see it. Gold has managed to rally to $1000 leaving an open question is to why that might be. We would say that gold is signalling the return of inflation and higher interest rates. In that regard, the Treasury bonds are struggling to hold these levels and will in all likelihood find lower prices with rates going the opposite direction (up, in case you wondering).

We had sold some of our stock index funds late in December to get some cash ready for a drop in prices but held onto our commodity based positions. We had been pretty bullish on the SP 500 in earlyJanuary, looking for an inauguration rally that never materialized. As January wore on with no SP 500 rally we decided to buy some energy related shares which we have continued to buy over the past several weeks.

GDX has kept our portfolio about even for the year since we are heavily invested there. We did take a little off the table in the last week or so due to our heavy weighting. Even with these sales, GDX remains a dominant part of our portfolio. The funds we received for the sale of GDX have now been plowed back into further energy type positions, at fairly good prices.

We do think that the SP 500 stocks need to rally soon since the banks have nearly gone to zero. This evening the news is that the government is thinking of taking more of an equity position in the likes of C (Citigroup). The WSJ broke a story that the government wants to convert some of its preferred shares in C to common thereby owning outright a larger portion of the company. This after we heard several denials of bank nationalization over the past few days.

The luau was good if you like eating and drinking near the beach on a nice 75 degree evening watching the sun go down into the ocean. Did we mention the weather was nice? There were pictures taken so we'll get some of them up on this week's posts. Jackson turned one in Maui, too bad he'll only remember it with the pictures that were taken.

Wednesday Update at a Luau

[Editor's note: The Update will be suspending posts for the next ten days. We realize that this is a poor time to be having a vacation but it's been planned for several months. The Update will return in two weeks or maybe less.]

We apologize for the lack of posts in the next couple of weeks but we do need a break. The market seems to be on a roller coaster ride with an upward bias so that's what we are looking for over the next several trading days.

Tonight the futures are falling but that doesn't generally mean much for the live trading the following day. We think there is a good possibility for a strong rally while we're gone. If so, we will be looking to take some profits...that would be nice.

Right now, and for the past few months, we have been steadfastly buying cheap assets expecting a strong rally some time this year. We had a few dollars left over so we bought some stock last week as we mentioned. Thursday and Friday were good turn around days. Over the weekend the traders are getting nervous because of all the activity in Washington. Our position is that whatever they do will be bullish for commodities and stocks, and not so bullish for bonds, in fact down right bearish for bonds.

GDX looks ready to break out over its 200 day SMA but it may need one last retreat under it to get enough steam to power above it for good. We expect a pop above that line sometime soon with a run to the high 30's if not 40. We'll see how high it can go on this run. If something significant occurs, we will be watching and may make comments in the comment section if we can.

As for stocks generally, the strong reversal last week led to a strong advance. People have been convinced to sell all rallies and this is no exception. As we see rallies that cause people to run after stocks instead of selling them, we will start to think about selling our positions. Until then, we just wait.

Have a good couple of weeks.

Big Bullish Reversal From Under 8000 in the Dow

Top Line: The market wants to go up...it stayed under 8000 for about an hour and a half.

Thursday was one of those days that we wait for. These days come up once in a while. The good trading opportunities like this are particularly enjoyable because they involve immediate gratification.

When CSCO announced earnings on Wednesday evening, the market, not just CSCO, dropped hard. How many times have we seen the market drop or pop at the open just to completely reverse itself right away. Just as a matter of review, we thought we would just take a look at the few opportunities we considered.

After putting the Update to bed last night, we put ourselves to bed and thought about what makes the most sense given the facts. Here's what we thought. We didn't really want to trade CSCO but as it turned out that was an ok idea, too, especially if you had purchased it in the after hours on Wednesday.

What we did think was that there were a few ideas that made sense. Sometimes you just don't have time to come up with very many. What you do is watch several things and choose something that gives you good probability of success. To us, this was going to be a two hour trade or maybe less so we don't need or want to understand the fundamentals.

Anyway, we had a notion that the Q's would be a good vehicle because CSCO is part of the Q's. The choice would then be the QLD which moves twice as much as the Q's themselves. Another choice was the SSO which moves twice as much as the SP500. Both of these ideas worked pretty well but there was another that we considered as well.

We have been watching the financials for a long time, several years. This pursuit has led us to watch the top banks in the last several months. The one we picked was Bank of America (BAC). We decided that if BAC dropped below 4, we would take a quick trade on it. Of course, it did trade down to 3.77 which was definitely below 4 but we Didn't have an order in to take advantage of it. From there BAC jumped to nearly 5 during the day. Unfortunately, we didn't really have an exit strategy either but any one of these three ideas (four if you count Wednesday's after hours CSCO trade) would have been profitable given you would have gotten out after the market jumped.

This blog is not really about short term trading like this but once in a while, these types of trades can really enhance your performance...plus they're fun. Ok back to work...

Thursday, GDX closed at the highest price since we have owned it. GDX has traded higher than today's close but the stock has not closed this high before. If you look at a chart of GDX with its 200 day SMA (simple moving average), you will see that for the last few weeks it has been bumping up against its 200 day SMA. One of these days the GDX will pop over that line and try to turn it up. Generally a stock wants to stay close to its 200 day SMA which was one reason we really liked it back in the fall.

The stock market is getting ready to go much higher. The idea that the Dow wants to go much below 8000 has been refuted for the past several weeks. The sellers are Hoping that the market goes down so they can buy. They will end up buying at much higher prices and they will most likely be buying from us.

CSCO Leads the Market Down After Hours

Top Line: The stock market looks weak which means only one thing...buying opportunity. Yes, we know it's getting old.

The weakness came back on Wednesday but it took until after hours for the NASDAQ to catch up with the Dow to the downside. That's when CSCO announced their earnings and disappointed the after hours market.

The market has a lot of fans that are bearish. The Dow did drop under 8000 Again today so let's see how long it takes for it to get back over that mark. Most technicians are looking for a solid break under 8000 giving the Dow a quick drop down to new lows. Just because the Dow dropped below the magic 8000 does not automatically guarantee a further drop to say 6000 or lower. If it wants to

We can understand the fear out there but the selling has been much lighter than we had during October and November. If you sold back then, do you now think that the market will give you a chance to buy them back at lower prices??? There are stocks right now that are cheaper than they were back in the fall but what we have to do is figure out if they are buys now, not if they're going down some more...

All day long we were thinking that the market was doing exactly what we wanted it to in order to show us that a low is in. The Dow was down but the NASDAQ was holding up very well going into the close. It is possible that the entire NASDAQ was hoping for good numbers out of CSCO which was holding up that index. That is possible but all were disappointed in the news and the index fell hard on the news. That took our main thought and flushed it. But, the concept is still there. The Dow looks weaker than the broader market which usually means that the market is done going down.

Can the market go down and make new lows? Of course it can but when it drops on news from CSCO it doesn't seem like a good enough reason to take the entire market down. What needs to happen is for the government to come to an agreement on the future of the stimulus package...we have been talking about this for a long time but the people don't like the results coming out of these discussions.

We are not giving you much this evening. Maybe the market will give us something on Thursday.

More 401(k)

Top Line: Keeping that 7 on the front of the Dow has been very difficult. The past few weeks, the Dow has been under 8000 several times but has failed to stay there. We remain bullish.

The stock market showed some "Juice" on Tuesday and may be ready to make a good move. We have been waiting for some sign of life in the market and Tuesday's move wasn't very strong but it does represent some life. If it can keep moving, more power will come into it. That's the way the it works...after a big move, everyone wants in. But we're getting ahead of ourselves again.

We actually bought some more stock today. We have been concentrating our purchases in the energy sector lately. The stocks that we have purchased in the past couple of weeks have been near their lows for the year or more which made them compelling buys. We expect at least some bounce back in the next few weeks for these newly purchased stocks.

We would like to continue our discussion from our last post. The 401(k) world has been dominated by the buy and hold crowd who lost a lot of money last fall before they were willing to finally sell out. Now, they are holding on to the possibility of lower prices to justify their departure dates. The question is going to revolve around when will they be "comfortable" enough to get back in. That will most likely be after a good upside run.

We jumped back into the 401(k) back in October over a series of days, again not much ability to get opportunistic here. We just wanted to get some exposure to stocks at that time...ok, 401(k)'s are tough. We have learned much since then...too late for then but we now realize that we have to be especially careful when committing funds to a 401(k). At least our options do not allow for much clarity in investing. Our options are the usual boring ones...large cap, small cap, international, bond, balanced fund, and stable value. How do you decide when to buy when you can't figure out what's in these funds? For us, it's nearly impossible.

What do we do? The current situation is a Bear Market and requires a much different approach than the sleepy buy and hold technique. The best we can offer for good returns is to find intermediate moves that can be traded. In a bull market there are scary drops to take out weak bulls and to excite bears that the top is in. The exact opposite occurs in Bear Markets, that is, there are scary pops to shake out the weak bears and to entice the bulls back into the market. That's where we think it possible to make a little money in your 401(k) or 403(b).

If you take a quick look at the SP500 (use the symbol SPX over on our bigcharts link to the left), you can find the 200 day SMA (simple moving average) by using the "Indicators" tab and selecting the SMA and type in 200 to the right. That will show you where the 200 day line is. What you will see is that it is over 1100. That is the target the market is shooting for. That's a long ways from here and represents a great opportunity for the 401(k) world. It is our expectation that the SP500 is headed much higher than that this year but it is a Trade, not a long term investment.

What's coming up this Friday is the jobs' report for January. The estimate is for a 500K job loss which is just a shot in the dark. There could easily be more than that. The market is expecting bad news and they will get it. It may actually cause a small selloff...we don't think the number matters again this month. The market will give us more clues in front of that number but we are finally seeing a glimmer of a rally.

One last thing...the Senate is going to bring a better solution to the economic stimulus package. At least the resulting legislation will be more palatable to the world. Today's news was that they were talking about lowering the corporate tax rate from 35% to 25%. This is the kind of news that could send corporate profits up if only temporarily. This kind of cut may have strings attached like the corporations will have to hire people in order to get it or something like that.

Enough already...

Waiting on the Juice

Top Line: We continue to be bullish...yes, it is getting trying but we are so close to a major rally.

The stock market is exhibiting no signs of a rally and most are waiting for those signs before they will buy any stock. We think that it's the market's job to confuse as many people as possible. You may think we are confused...as they say, often wrong but never in doubt.

Last fall when the market collapsed into October and November, the news was bad and the news is still bad. Part of the function of the market is to be a discounting mechanism. In this case, the huge drop in the fall was telling us that the news would be bad for some time to come. The economy is still in trouble and the bailouts continue. That is precisely the reason for the market to go up. There is more money floating around for all kinds of reasons. The main one is that people sold some of their stocks in the fall, of course, they sold after the Fall in prices at ten year lows in prices.

We were buying from them but looking back, we could have done better. That's not stunning news but once in a while you have to take a look at what you were doing and see if there is something better that you could have done.

One of our main problems has to do with trading in 401(k)'s or as some have called them 201(k)'s. We hope your 401(k) didn't take that much of a beating. Our main problem with the 401(k)'s are the limited options in these vehicles. Looking at some of the choices available gives us very little information but one thing is for sure...we don't know what we are really buying.

With an IRA or an after tax account, you can be much more specific about what you buy. You don't have to leave it up to the fund managers of your particular allocations of funds in your account. Not only that, the timing of your purchases is at the end of the day prices. How can you be opportunitistic with that?

So, how do you manage a 401(k)? We don't think it's very easy to do. We have been suggesting that you buy since October and October 10th was a good day to buy some great deals on individual stocks. But, a stock fund in a 401(k) would have included a large portion of financial stocks which continued to get punished into November and even beyond.

That brings us to the other problem with these funds...the other participants in the same fund. While it's something we have tried to change in ourselves and our readers, human nature is tought to change. Normally, people use part of their payroll checks to buy some "diversification" of funds. In fact as the market "goes up", they get more confident and more and more people put more and more money into these funds...at the high prices. They normally only sell in times of stress like last fall and probably in 2010 and 2011.

Imagine the fund manager with this flow of funds. The manager is supposed to be "fully" invested at all times even though they know that they should be selling into strength and buying weakness. The flow of funds is completely the opposite, they buy the most at high prices and sell a lot at the lows. Selling by 401(k) participants is usually a complete sell into weakness while buying is more of a continuous event leading to some very serious selloffs and some over extended tops.

We're at a loss to make any good money in a 401(k) in a bear market. What we do know is that we need to be aggressively managing our accounts in a bear market. When prices were generally going up from 1982 to 2000, and possibly even into 2008 if you were in the right place, a buy and hold strategy worked ok. Yes, there were periodic big scares, but the market always came back and went higher. The past ten years have produced no gains for the SP500 and most of the gains that may be left in the 401(k) are probably the sum of contributions made in that period.

So, what can we do? In this market, we have concluded that there will be sharp rallies in this bear market which are the only times we want to be in the market. When the market is going down, we want to be in Treasury securities if we Know For Certain that the bond fund is investing in Treasuries or else be in a stable value fund.

How do we know when the market is going up or down ever??? There never is a view that gives total confidence but there are some clues that can help us. When people are generally bearish we figure they have sold so we want to be buying. We do need to answer the question about whether they are just saying they are bearish or if they really sold. Going back to the theory that human nature forces people to sell into weakness, they have already sold. The last five months have caused human nature to sell stocks. Our other tells are they are buying Treasury bonds and puts.

No post this evening

We will be back on Monday evening.

Market Scares Again

Top Line: So, the market confuses everyone on Thursday. This seems to be the pullback we were calling for yesterday. That means the market should be read to roll ahead very soon.

The Dow gave back everything from Wednesday's up move. These kinds of moves scare stock traders and cause them to sell. They will be looking at the large drop and thinking it's time to sell some more of my stock...Oh wait a minute, they are Out of stock to sell. So, they will be sitting there hoping the market goes down so they can get back in. Maybe hoping for a decline is a little strong, we should probably say they are out because they are afraid stocks are going down.

Yes, fear it is and it will keep people out of the market until they are convinced it's safe to get back in. When will that be? We predict that as the Dow approaches the 10K level, people will get more confidence...Guess what we will be thinking. Right, we will be getting nervous about staying in too long.

Today's decline didn't hurt our portfolio much. In fact with GDX up, our top holding by far, we had a positive day. After our missed trade on Monday morning, we are looking for an excuse to sell some of our over weighted position in GDX. The reason it's over weighted is because it has gone up while the other parts of our portfolio have not. They will move up in time.

Today was GDX's highest closing price since its low back in October. There are a few reasons why we should sell, not many are worthy except for the one that says we should hold some cash for opportunities and the one that says we are about to overstay our welcome. We should relax but it is bad not to have at least some cash around. Selling at a high relative price means we can be prepared to buy something else that presents itself.

Seriously, we do have other plays in the energy and other commodity sectors that look compelling but we are fairly pleased with what we have at the moment. The only thing is that we have let the GDX get to be too high a percentage of our portfolio. We consider this somewhat dangerous, even if we are confident in the direction it is traveling...yes, up.

The news from yesterday was that the House passed the so called "stimulus" package and is sending it over to the Senate for their approval. We think that the Senate doesn't like the bill and part of us thinks that the President doesn't fully like it either. Plus, there don't seem to be many people who think it is a stimulus package. We don't want to debate that.

What we do want to consider is how this package affects the stock market. For that, we go back and review the way the TARP funds were passed. The House voted it down and the people sold stocks the next day. Then the Senate took the bill and added some...extra spending...passed it and sent it back to the House. The stock market seemed to like it that the Senate passed it.

We think that we will see the same type of thing this time. The House passage was not given the best of receptions in the stock market with this drop of 225 points. But, we expect that the Senate will "fix" that problem and give the people more of what they think is worth buying stocks for. So, we expect a fresh start as the Senate starts explaining what they are going to do.

The bond market is beginning to understand that there is some debt coming to market. The US Treasury 5 year auction didn't go too well on Thursday with a higher rate than expected. The entire bond market dropped hard all afternoon. Since the first of the year, the long bonds as measured by the TLT have dropped from 123 to 104 or about 15%. We think there is a lot more to go. This drop in the Treasuries is a big hint that the stock market is about to jump.

If you need a further confirmation of the impending stock market rally, we suggest you take a look at the corporate bonds, investment grade that is. We finally found a way to keep track of them. There is an ETF that tracks them, LQD. Go to our link for bigcharts and look at the one year chart for the LQD. You will see that the index traded around 105 early last year and collapsed to 80 in the October 10th timeframe. From there we see it rally back to about 100 in the past month. This is part of our argument for the market's imminent rally.

A Nice 200 Point Rally

Top Line: We are still bullish but a pullback may be inevitable after several up days in a row. Any pullback would be a good buying opportunity.

The stock market followed through on late Tuesday's "bad bank" talk. On the back of that the banks led a 200 point rally. The non-news out of the Fed in the afternoon didn't slow the move down. The Fed did say they might be willing to buy long dated Treasury bonds...maybe that's the reason they fell out of bed right after that announcement.

The news of the economic stimulus package getting through the House provided some additional fuel to the stock rally. Tonight the House did pass the bill and will be sending it on to the Senate even without one Republican voting for it...so much for bipartisanship. Again, we don't want to get into what happens, just how the market reacts or will react. We think the market likes the idea of this news, that being the anticipation of the final news and will sell the actual news.

This fits with what we have been thinking...that the market wants to jump over the next couple of weeks. As we said earlier, the market will have some pullbacks in the next few weeks which we think are buying opportunities.

The end of the month is upon us and the next ten days of trading should give us a pretty strong rally. Company earnings' reports are nearly done and this is time when stocks can be doing whatever they want because no earnings reports are coming out for three months.

The Treasury selloff today does create the possibility of a sharp drop of a couple of points on the TLT which may be the end of the first down move. What comes after that? Right, a corrective move back up part way. With that rally expected in the next few trading days, and with the volatility indexes matching their lows of a couple weeks ago, the possibility of a pull back in stocks is right in front of us. The nice rounded bottom of this last few weeks should give us a solid footing for a good rally but in order to scare some of these late bulls the market may have to take a quick dive in the pool to shake some of them off.

Strong Reaction to the Bad Bank Concept After Hours

Top Line: Yes, we are still bullish nearterm...

The stock market tried to go up on Tuesday and it did manage to squeak out a 50 point gain in the Dow. This is not the kind of rally we are looking for...

Tonight the futures are up on the back of a couple of news items. The first is some "bad" news from YHOO but the market decided it actually wanted to give their new CEO a chance to make a difference. The other is the progress being made on the stimulus package. Oh, well, the market finally thinks there will be a stimulus package.

The rally we expected near the inauguration is now going to kick into gear with the expectation of a grand stimulus package. Sure, the market may not jump on Wednesday but the delayed rally is coming. Looking at the areas of strength, we think those are energy related and we do like the GDX. Today, Peabody Energy (we like their symbol, BTU) announced earnings that were $1.10 versus the 74 cents expected. The coal industry was the best performing on Tuesday at over 8%. Peabody (BTU) was up 12% by itself.

Part of the stimulus package seems to be directed at the Bad Bank concept. The bad bank idea is gaining momentum and has been around for a while. It will probably be the latest effort to "get the lending going again'. The article discusses a couple of issues and we recommend a quick read to get the highlights of the situation...this includes nationalization and the Fed meeting going on right now.

The rally in the after hours has to be looking specifically at the stimulus package progress. Banks were acting pretty well in the afterhours but so were many other groups. Whether you agree with what the government is doing or not doesn't matter. What matters is what the market is thinking. We expect that the news could rally the market at least as far as the "buy the rumor and sell the news" saying goes.

Last week we recommended SSO saying it "is a good buy near 21 with a good upside potential". With the Dow dropping below 8000 last week, the SSO traded below 21 a couple of times and was a great buy there. We think it has good potential in this rally. The target is 30 plus in the next several weeks.

Late last year, we warned you that we would be trading more than we had over the past several years. We have liked the GDX and have recommended it on many occasions. Right now, if you are buying something, we would probably not recommend GDX because there are better deals out there. We said we were buying (and adding to our positions) energy names last few weeks and those included natural gas and coal.

The stock market is about to go on a good run and the economy seems to be going no where but down. It is important to fade the news on the economy and focus on the opportunities in the market.

GDX Discussion

Top Line: The news continues to be bad and the market just keeps on hanging on. We continue to expect a rally. Most of the earnings are behind us and we do have the end of the month just ahead.

This morning gold was up and so was the GDX. We saw the goal line to be near the 200 day SMA and put in an order to trim some of our position. We set our prices too high and failed to sell any of our position. We are running into the situation where the GDX has gone up while other assets have just held their own, making the GDX a giant portion of our portfolio. Plus, as we mentioned, we have no cash left to take advantage of any opportunities that come along.

We do not want to sell our GDX at any price just to satisfy our need for cash or to rebalance our portfolio. We want to sell GDX, or any position for that matter, when it makes sense to do so. This morning with the GDX pushing up against its 200 day SMA seemed like a good time to sell into strength. We do think that higher prices are coming but sometimes we like to play around and try to do things that make sense to us at the time. This morning's peak at 36 preceded a severe drop in the stock back down to 33.50. That's a big reversal.

We think that GDX is still headed higher but we have been in it so long that we remember that it is no longer a value play like it was back in October. That's when we were shouting that GDX was a buy. The rally ahead of us should take GDX up through its 200 day SMA and then it will drop back along with the market. The GDX may drop through its 200 day SMA but if it does it should not stay there very long. Yes, we are getting ahead of ourselves but we have been waiting for a rally for a couple of weeks now.

In the news, existing home sales were up nearly 9% in December as mortgage rates and home prices dropped allowing buyers to get in on the cheap. The other "surprise" news was the leading economic indicators (LEI) were up rather than the down forecasted. As we mentioned in our last post, if the market expects bad news, how can it be a surprise? That would be, if the news wasn't as bad as feared.

End of the Month Rally Due

Top Line: The stock market struggled to go down on Friday and that alone could lead to a strong rally coming up in the next few days.

After a valiant attempt to go lower and the lastest Bad news, the market rallied out of the depths. We have been watching the market trying to get below 8000 for four straight days. Every time we get under 8000, buyers come in to hold that line. We don't think 8000 is a particularly important number but the market does seem to be holding the line here.

The market had tried to go below 8000 back in October and November of last year and it couldn't stay there at that time either. We think the sellers are about done for now at least. After a three week decline in prices, the bears are out of selling power. Check this article from CNN Money. The whole article is bearish even though every possible item is "expected" to be bad. If the market expects it to be bad, then it's already been priced in.

Let's go back to Friday's action which seemed pretty commodity friendly, particularly in the precious metal arena, where gold exploded for 40 bucks. GDX got chased up over 8% to the low 34 range after getting as high as 34.67 during the day. That is the highest the stock has been on this up move that started back in late October, under 16. Back in our January 14th post, we mentioned GDX being around 28...a good buy then. Now, it's up 20% from there.

The 200 day SMA (simple moving average) for GDX is sitting right above it around 36 and that should be some resistance for it; but, with the 50 day SMA moving up it's only a matter of time before the stock breaks through the 200 day SMA and starts to pull it up. Looking at the 50 day SMA is one of the clues that the drop down to 28 was a good buy. That was just above the 50 day line and the 50 day line was moving up.

We think the stock market has the power to jump 20% in a couple of weeks, too, just like the GDX. It's true that the 50 day SMA for the Dow is still moving down and the Dow is under it. There are so many other signs that the market is ready to go up now. We have mentioned them in several of last week's posts but we mention our favorites here again, the drop off in the Treasury bonds prices and the height of the volatility indexes.

Happy New Year to our Chinese friends.

MSFT Spoils the AAPL Rally

Top Line: The market is being very volatile up one day and down the next. This is the way bottoms are formed. The next few days could be volatile leading to a sharp up move.

Today, MSFT (yes, Microsoft) delivered news that they would release up to 5000 employees. We were expecting an early morning rally after AAPL's news last night but MSFT squashed that thought. Maybe we shouldn't even mention that GOOG's earnings were pretty well received after the market closed. In fact, GOOG rallied on the news at first but couldn't hold it.

This setback gave us another opportunity to use up the last of our cash to buy some more stock...yes, in the commodity category again, energy complex this time. We do Not like to be without cash, though, because we have enjoyed having the flexibility to take advantage of whatever opportunity showed up. We thought that we would be shorting into the inauguration rally which Still hasn't showed up. With that rally we would have lightened up on our long positions and had some cash for further opportunities. Instead, we found some intriguing buying opportunities in this decline.

We've had about enough for one week. Next week is the end of the month which normally brings the bulls back to the party. For now, we'll just wait until next week. Still, if the market goes Down any more on Friday or early next week, these may be good opportunities to buy some more...well, not us due to no cash. We can't let this happen again.

Have a good weekend...

Will the Market Go Down This Year?

Top Line: The stock market is in the early stages of the rally we have been waiting for the last two weeks...yes, finally. We expect a rally that will come as quite a surprise to most analysts or, for that matter, amateur traders like us.

In the last couple of days we have heard some comments and questions from a few sources. We thought this would be a good time to answer these questions. We're trying to let the market tell us what to do and the questions are all about whether to trade your cash in for stocks or keep the stocks you have.

How low can the Dow drop this year? We don't really think there is much reason to talk about what may occur in December because that's not what anyone cares about. What we all care about is Now. Let's be clear, we are generally bullish for the next several months with a few scary drops during that period. But, just for argument, we will consider a short term drop for discussion.

Elliott wave theory may need to be employed at this stage. There is a minor chance that the current downturn is a wave five like we mentioned in yesterday's post. If this is true, we can sort of estimate an area where the "low" may occur.

[Tutorial: For Elliott wave, the first wave and the fifth wave can have a similar length. You may remember that the first wave, the third wave, and the fifth wave travel in the direction of the main trend while the two wave and the four wave are countertrend waves and move in the opposite direction of the main trend.]

So, how long Is wave one? Well, the high was back in October of 2007, and the first wave down was about 2500 points from 14K down to 11,500. This would imply that the fifth wave could be 2500 points also. Now, when did wave five start? That's a big question for the Elliott wave stance. Some may say that it has not started just yet but if it has, we could argue that the start of wave five was around 9500 or a little higher than that. That means that A target for the end of the fifth wave would be around 7000.

We could argue that the November low right around 7400 Could be the fifth wave low and we are now in the countertrend move to correct those five waves down from the 14K top. Here's where Elliott wave can help us again. Those five waves down we have been talking about are the essence of Wave One of the big down move that we expect to last for a long time. The important thing to know is that the countertrend usually has a minimum target of 38.2% and a maximum target of 61.8%. Those would be about 2500 and 4000 points off the low. Just an estimate as to targets for the Dow would be a range of about 10K to 11.5K based on these numbers. These are approximate numbers and just give us an idea where we could go. The one issue here is that a wave two is notorious in that it likes to go much further than 61.8%. This excess movement is driven by people who will think the worst is behind us and it's off to the races again.

Our position is that the market has seen the lows but there could be slightly lower 2009 lows. We don't think it's enough to stop you from buying. Over the past week, we have moved out of cash and into the market. We had sold some of our positions in late December to prepare to short into the strength we would have by the inauguration...well, no that didn't happen but with that cash we got a nice present from the stock market in the past few trading sessions when the Dow dropped below 8000. We bought a couple of stocks that are near their lows of the last couple of years. Plus, the leftover cash we had in our 401(k) was moved into the market on Tuesday. We have very little cash left, maybe about 3% of total assets. We are fully long and bullish in case you are wondering.

Today's market was just what the doctor ordered based on that VXO high we saw in Tuesday's trading, not to mention that drop below 8000 again. These prices are hard to ignore and represent good entry points for this Bear Market rally.

During the day, Jamie Dimon of JPMorgan decided his company was cheap enough and bought 500,000 shares, an $11 million purchase. This is a guy who is not going to get a bonus this year and he had to pull this out of his saving's account in order to buy these shares. Ok, maybe that's not what he did. Also, Ken Lewis over at Bank of America bought some stock. So, if you think the bank stocks are going to zero, Why are these guys buying their own stock? To us, this is the one thing that should make Everyone realize that the financials may have found a bottom...

The Treasury bonds spent the day dropping over 3%. When these T-bonds go down, we get more bullish on the stock market because a lot of this money being taken out of bonds will go into the stock market. Even the dollar reversed course on Wednesday.

Also, after the market closed, AAPL brought us a little bullish present just like IBM did on Tuesday evening. AAPL's earnings were better than expected giving the market another excuse to go up. This evening the US futures are up strongly with a nice pop scheduled for the opening bell. Asia is trading up about a percent. Since Europe was down on Tuesday, they have some catching up to do so there should be a "spin around the globe" rally...at least at the US open...no, not the golf open, the Stock open.

Wall Street Drops Hard Even With Washington Events

Top Line: Stocks were on sale on Tuesday. Did you buy any? Tough to buy weakness.

Tuesday's trading included about a 20% drop in the banks, including our employer, ING. The top four volume leaders were Bank of America, Citigroup, Wells Fargo, and JP Morgan, all down 20% or more on the day. Their total volume exceeded 1.1 billion shares or about 65% of all volume on the NYSE.

The Dow dropped below 8000 once again on Tuesday so the reversal the other day from under 8000 was not the key reversal. But, here we are again. Is this a reason to sell??? What happened today that we think is important? Is the Dow under 8000 an important event today or not?

The selling was aggressive on Tuesday and the fear grew all day with the volatility indexes rising all day. In fact the VXO rose over 10 points to 56.25. A 300 point drop in the Dow was enough to push the VXO up over 20%. What else?

To us, the biggest sign is the GDX. GDX was the first to turn down which gave us a clue that the market would probably follow suit. Now, GDX looks to have put in a bottom last Thursday. That is a big hint/clue on what should happen to the rest of the market. GDX moved from its Thursday low of 27.15 to today's high at 32.51, nearly 20% in three trading sessions. This may be a little more than what the whole market may do but the direction should be correct.

The last few trading sessions, we have put our cash back into the market on the long side. Even though we suggested that the SSO may be attractive under 22 in our last post, we didn't buy it today. We decided to buy something else. We still think the SSO is a good buy near 21 with a good upside potential. We also moved the remaining cash in our 401(k) into the market.

So, after the close, IBM announced earnings that were surprisingly better than estimates. The market liked this news and pushed IBM up over 4%. This news persuaded the futures to pop a little and are still up right now as we write. The Asian markets are down some, likely in sympathy to the Dow's 300 point loss.

We don't want to waste any time on the banks this evening but you can go read about the nationalization of the banks starting with the RBS (Royal Bank of Scotland).

But, we do want to consider the possibility of a rally off these lows, maybe spurred by the IBM news this evening. When so many people just sell without much thinking, as happened today, the time to think about buying is at hand. Those people that just sell in panic or buy puts in panic or in speculation should not get rewarded for this activity after a 1000 point move down in the Dow. We say that the bears are so prevalent now that the market will have difficulty following through on the downside.

If you want to pay attention to Elliott wave, the market is trying to put in a fifth wave low of the first wave down someplace between here and zero; so, whenever the fifth wave low is in, that is a final move and suggests a strong wave 2 rally which would correct the down move from the 14k high to the 7500 low. Just a 50% correction would take the Dow back to 10,700 or so, with a normal retracement of 61.8% which would take us back to near 12K.

What we're trying to suggest is that a 300 point down day is a good buy especially considering the possibilities. Can the market go down another 1000 points or more? Of course, it can do whatever it wants to but we think a year long "bear" move deserves some recovery. When a lot of bearishness prevails seems to be a good time to think that will happen. With a VXO of 56, it's a really good time.

All Eyes on Washington...Bears on the Street

Top Line: The over night futures are weak this evening which may lead to a lower opening on Tuesday. The low prices are shaking many out of the market in order to prepare for a good rally.

Options expired on Friday with some minor drama. The Dow opened up about 100 points and then sold off about 200 points from there before rallying back those 200 points into the close. With a little selling just before the close, the Dow managed a 68 point gain for the day...but, that's all so "last week".

Tuesday marks the beginning of a new Presidency and should have been enough to rally the stock market over the early weeks of the new year. That has just not happened so will the next few weeks start that rally or not?

The US market was closed on Monday (which is why there was no post from the Update on Sunday evening...we only publish on the evening before trading days). The other global markets were mostly open and largely lower so the US is making up some ground to the downside this evening. We'll see how trading goes here on Tuesday.

The market seems to be making a run at lower prices but this should be a buying opportunity for those of you with some cash left. We have some left and will probably be looking seriously at purchasing more this week. We have been heavily leaning toward commodity type positions including commodity producers over the past several months. Our top holding is GDX which had a solid advance from Thursday's lows around 27.25 to Friday's close of near 31. Gold itself rallied 4% on Friday to encourage the GDX. We think we own enough of GDX, so we probably won't be purchasing anymore this week plus after a giant rally this is not a good time to buy it.

We have been thinking about getting back into the long index ETF's and they now may be getting cheap enough to consider again. However, the commodities look so cheap and seem to have a lot more upside to them so we would like to see a further drop in the stock indexes or we would buy more commodities that are cheaper.

Looking specifically at the SSO, it traded up to near 29 a couple of weeks ago and fell below 22 last Thursday. Friday it traded up near 24 and closed just above 23. We think the near term potential of this is about 34 so if we can buy it back down under 22 we may consider it. The QLD doesn't seem to have dropped quite as much over the past couple of weeks so doesn't look as attractive but we will keep an open mind about it in case it does give us another opportunity down around 24 or less.

Tuesday's trading will give us a good idea what will happen in the near term so we want to keep a close eye on trading. Given good opportunities we may take advantage of them.

We are doing more trading than we normally would but given the market's volatility, we think trading will need to be done more over the next few years. There may be long periods where trading is not needed but in the short run the market has given us plenty of trading type situations.

Right now we are getting close to a large rally and we don't want to miss it. Thursday's turn around may have given us a good indication for that rally but the market wants to hold that obvious until the last possible moment. That serves to confuse as many as possible.

We see the volatility indexes as far to high to consider selling our positions. The VXO should get into the 20's before we think about selling and it's still in the high 40's. The bears are out in full numbers according to these high levels so we think the market should rally strongly to shake out these bears.