Top Line: We are starting to see the market drop into the area we have been waiting for...that would be the 850 level in the SP500. What to do now???
Since the market is finally dropping, we want to start looking at what we need to do. For those of you who left your portfolios alone for the past couple of months, you don't have to do anything. You simply want to stay with your positions. Don't get scared out of them as prices drop into the July lows. In fact if you have come into some addition cash, you would be able to buy some good prices during this period. That would keep your mind off the fact that your other positions are losing a little money.
For those of you who did sell into last month's strength, like we did, you will now need to decide what to buy in this great opportunity. If you sold your 401(k), you could just go back and buy what you sold. If you sold some individual stocks or funds, you can simply find a good price to buy them back. If you're like us, you have been watching them get cheaper over the past few weeks.
Then, if you were as crazy as we were and went short, you have a complicated situation on your hands. How do you time the short unwind with the long purchase. With our margin account, as soon as you sell one position you can buy another. In a cash account, you will need to wait for a day or two.
We do think that the market will give us some good signals as it already has so let's take a look at what they are. Let's see if you remember the big ones. Our target is 850 in the SP500 and volatility indexes getting near 40. The other one is weaker Treasury bond prices...remember that these prices have been rallying recently.
Today's action had the SP500 slipping under the 870 level briefly. That's not too far from where we would like to start getting back into the market. It's possible our 850 target is a bit higher than the ultimate July low but that's what we want. We want to buy as prices drop and buy weakness by putting orders in Under the market.
Today's action had our favorite volatility index, VXO, moving back up near the 34 range. This is after dropping under 24 about a week ago which was a great Sell signal for stocks. That's a big change and we expect higher "fear" levels as prices drop in the market.
The long Treasury bond was up strongly today (Wednesday) giving no indication that the end of the stock drop is here. Keep your eye on TLT for a good proxy. Today it closed at 96.50 after being below 88 about three weeks ago. Everything is on track...
Today offered a great opportunity to purchase both GDX and UNG. We tried to buy both but only ended up getting into GDX. We were pretty aggressive with our purchases today but the range on GDX was a couple of points, about 34.5 to 36.5, the lower price due to the gold price coming down near the $900 level with a $20+ drop during the day. We replaced our original position that we had sold last month. The price dropped from 45 last month to 35 this month which is about what we wanted to see. Now, we are prepared to buy more if the price goes down even more. Here again, the price of GDX making a new low for the move gives us another clue that the market has not found its bottom just yet because we expect GDX to Lead the market and if it's not done going down, neither is the market.
The market does seem like it wants to drop below 850 that we have been targeting for several weeks. Now that we've replaced our GDX position, we can start concentrating on our other stocks that we sold. They have all dropped by over 15% so we are going to need to figure out how to buy them back. We have been trying to set some prices to buy but we are still waiting for the market to drop to find out what those might be. Well, now we need to make some serious decisions. It's important to put in some orders below the market and let it come down to us. It is possible that some of our stocks have already bottomed so we may need to be a little more aggressive to buy them back.
Finally, we are pretty sure that the market will put in a bottom in the next two weeks so the time to act is over the next few days. Since next week is options expiration for July, we expect the lows to show up sometime near Wednesday next week, that would be the 15th. For now, that is our target date to have executed a plan to be back in the market. As our primary clues show up, we will need to hurry up our plan.
We are considering moving our 401(k) money back into the market over a period of about a week or ten days, buying heavier on weak days. If you have questions, leave them in the comment section and we'll try to get to them as soon as we can. For those of you who know how to send me emails, that would certainly work, too. Good luck.
Wednesday, July 08, 2009
Monday, July 06, 2009
Jackson Has Pictures
Top Line: We promised a few more pictures and here they are.
[Next Update on Wednesday evening.]
Batter Up...
The chick magnet is at it again, this time at the playground.
Crashing a graduation party...
Tough to hit a golf ball if you don't have your cool shades on...
Sunday, July 05, 2009
Jobs' Report Was a Bit of a Sell Trigger
Top Line: Market should continue to drop over the course of the next week or two.
Thursday's jobs' report released about an hour before the opening bell did seem to be a trigger for some selling as the market opened with a thud. The rest of the day wasn't much better although the damage was done early in the day. In the first 45 minutes of trading, the Dow was lower by 180 and managed to drop nearly 225 by the end of the day. So from Wednesday's high to Thursday's close the Dow dropped about 300 points. As for the NDX (NASDAQ 100), it dropped 35 points in the first 45 minutes and that's about where it closed.
As you might imagine the volatility indexes did climb strongly on Thursday after Wednesday's reversal. For example, the VXO traded down around 23.75 on Wednesday morning and then closed Thursday near 27.50. We expect this "rally" in fear to continue as the market puts in lower and lower prices over the next couple of weeks.
There has been too much bullishness since May and the buyers during that period of time should be pressured by now into reconsidering their positions. If, or as, the market drops in the next couple of weeks, there will be more and more urge to sell as people start believing in the continued recession theory. This week we should start seeing some second quarter earnings numbers which probably won't help the market out. In fact, this could generate more fear and therefore more selling pressure.
As we write this evening, the overnight US futures are down somewhat as the Asian markets are down a little, too. The Hang Seng (Hong Kong) index has recovered some of its lost ground but not the Nikkei (Japan). Monday morning should be pretty interesting as the US market opens on the back of the global markets lead.
We didn't provide any more pictures of Jackson but we will put some more up on Monday evening.
We hope you had a great weekend and now are ready for a couple of weeks of treacherous trading. Let's get back to it, shall we...
Thursday's jobs' report released about an hour before the opening bell did seem to be a trigger for some selling as the market opened with a thud. The rest of the day wasn't much better although the damage was done early in the day. In the first 45 minutes of trading, the Dow was lower by 180 and managed to drop nearly 225 by the end of the day. So from Wednesday's high to Thursday's close the Dow dropped about 300 points. As for the NDX (NASDAQ 100), it dropped 35 points in the first 45 minutes and that's about where it closed.
As you might imagine the volatility indexes did climb strongly on Thursday after Wednesday's reversal. For example, the VXO traded down around 23.75 on Wednesday morning and then closed Thursday near 27.50. We expect this "rally" in fear to continue as the market puts in lower and lower prices over the next couple of weeks.
There has been too much bullishness since May and the buyers during that period of time should be pressured by now into reconsidering their positions. If, or as, the market drops in the next couple of weeks, there will be more and more urge to sell as people start believing in the continued recession theory. This week we should start seeing some second quarter earnings numbers which probably won't help the market out. In fact, this could generate more fear and therefore more selling pressure.
As we write this evening, the overnight US futures are down somewhat as the Asian markets are down a little, too. The Hang Seng (Hong Kong) index has recovered some of its lost ground but not the Nikkei (Japan). Monday morning should be pretty interesting as the US market opens on the back of the global markets lead.
We didn't provide any more pictures of Jackson but we will put some more up on Monday evening.
We hope you had a great weekend and now are ready for a couple of weeks of treacherous trading. Let's get back to it, shall we...
Wednesday, July 01, 2009
The Market WANTS To Go Down
Top Line: The early trade in the last "half" year was to buy 'em. That only lasted for about an hour as the market jumped about 1.5%. From there it was down the rest of the day. The market is ready to go down.
The next couple of weeks are going to be pretty exciting and scarey at the same time. We expect the market to go down giving some of us a chance to unload our shorts and buy some more stock. GDX moved up so much today, we are getting nervous that we'll not be able to buy for the prices that we want. Well, GDX should drop back with the market and we Will buy more of it.
The volatility indexes dropped to fresh lows today and then reversed. With new lows Again and stocks not near their relative highs from a few weeks back, this is extremely bearish.
Remember that Thursday morning we get the employment report which could be a problem for the market but maybe not...we'll see.
Here are some more pics for you.
Jason and his friends ran the half marathon again this year.
The next couple of weeks are going to be pretty exciting and scarey at the same time. We expect the market to go down giving some of us a chance to unload our shorts and buy some more stock. GDX moved up so much today, we are getting nervous that we'll not be able to buy for the prices that we want. Well, GDX should drop back with the market and we Will buy more of it.
The volatility indexes dropped to fresh lows today and then reversed. With new lows Again and stocks not near their relative highs from a few weeks back, this is extremely bearish.
Remember that Thursday morning we get the employment report which could be a problem for the market but maybe not...we'll see.
Here are some more pics for you.
Jason and his friends ran the half marathon again this year.
Tuesday, June 30, 2009
The End of June Has Finally Arrived
Top Line: The market could have turned the corner today. The stock market tried to start out the day higher but reversed and ended down on the day. Meanwhile the volatility indexes that have been lower day after day also reversed to the upside as stocks reversed to the downside setting us up for some more downside.
We do have to mention some pervasive talk about a head and shoulders top formation. We have read about this formation for the past few days and it has some merit except when it is so widely expected.
Normally, the head and shoulders pattern can indicate a strong failure at the neckline with a measured move after that which is about equal to the distance from the top of the head to the neckline. TRANSLATION: Looking at the SP500, the head is around 950-955 and the neckline is around 875-890 so if the market chooses to break through the neckline over the next few weeks the target would be a distance of about 75 points from the neckline...meaning the SP500 could drop to around 800.
We don't find this very satisfying since so many people are aware of it. We do favor a break of the neckline to alleviate the overbought condition indicated by the volatility indexes but we don't like the move all the way down to 800. It's just too far. We have said that the SP500 would go to around 850 and we are sticking to it. The avalanche of selling could take the SP500 down from 875 to 850 in about two heartbeats with the second one being enough to stop your heart, but we still think much below 850 is wishing for something you can't have.
As a reminder, the market is closed on Friday and we will post on Sunday evening.
More Jackson pics tonight and there should be more tomorrow evening as well. With the market closed we may still put more pictures of Jackson up over the next few days.
We do have to mention some pervasive talk about a head and shoulders top formation. We have read about this formation for the past few days and it has some merit except when it is so widely expected.
Normally, the head and shoulders pattern can indicate a strong failure at the neckline with a measured move after that which is about equal to the distance from the top of the head to the neckline. TRANSLATION: Looking at the SP500, the head is around 950-955 and the neckline is around 875-890 so if the market chooses to break through the neckline over the next few weeks the target would be a distance of about 75 points from the neckline...meaning the SP500 could drop to around 800.
We don't find this very satisfying since so many people are aware of it. We do favor a break of the neckline to alleviate the overbought condition indicated by the volatility indexes but we don't like the move all the way down to 800. It's just too far. We have said that the SP500 would go to around 850 and we are sticking to it. The avalanche of selling could take the SP500 down from 875 to 850 in about two heartbeats with the second one being enough to stop your heart, but we still think much below 850 is wishing for something you can't have.
As a reminder, the market is closed on Friday and we will post on Sunday evening.
More Jackson pics tonight and there should be more tomorrow evening as well. With the market closed we may still put more pictures of Jackson up over the next few days.
Monday, June 29, 2009
Just Some Pics
Top Line: For some reason the stock market just wants to hold up into the end of the quarter. With the volatility indexes dropping again, stocks should be vulnerable to a major decline coming up pretty soon.
We said we would put up a quick post so that was it, the Top Line. We hope you enjoyed it :-)
But, here are some pictures for the past couple of months. We realized we haven't had a picture of Jackson since early April. No wonder our readership has declined...it can't be the market analysis, can it?
Jeff's 30th Birthday Party at the Dome.
More pictures tomorrow...
Sunday, June 28, 2009
Market Taking It's Sweet Time
Top Line: The stock market still wants to go down but it also wants as many bulls to go down with it. Beware the volatility indexes...
The volatility indexes seem to be collapsing, meaning the fear in the market is diminishing. The latest check on the volatility indexes is that they are the lowest of the move which is a warning since the stock indexes are not new highs. Last Thursday's strong 2.5% up move gave plenty of confidence to the new bulls driving volatility indexes down. At the very least this is a bold statement that stocks are in need of a pullback to correct this bullishness. The market will have a tough time moving up if we don't get rid of some of this bullishness.
As our title indicates, the market is taking it's sweet time about going down. We're the only impatient ones. We need to enjoy this as much as possible since a strong up move will be coming as soon as we can eliminate the enthusiasm.
We say enjoy because there is still money to be made on the downside over the next couple of weeks. We are Not encouraging you to trade that way but we do think better prices are coming for those of you who still have money sitting on the sidelines. Two important indicators are the volatility indexes and the SP500 price level. We expect the VXO to go to near 40 and the SP500 to go to near 850. If one or both of these occur, we will be extremely bullish once again.
GDX popped above 40 last week and seemed to have left all of us in the dust. But, we think more buying opportunities exist for GDX, too, although maybe not as low as we saw it last week. We will continue to buy it if it drops back into the 37's and hopefully back into the 36's. That would be a good time to buy. Of course, it is possible it could break below last week's low near 35.50 but we don't think there's a very good chance for that. We would like to see that because we would like to buy more as cheap as possible.
Our other fund, the TLT, a basket of long dated Treasury bonds, traded up strongly on Thursday along with the stock market. This is not a common thing and we expect that the stock market was in the wrong last week with the bond market making a corrective up move starting a couple of weeks ago about the same time as the stock high. This occurred back on June 11th. The SP500 hit its high for the move, so far, and the TLT hit its low on about the same day. When they move together one of them is probably acting wrong and that is probably the stock market.
We promised a few people some pictures of Jackson but they will need to wait until tomorrow, so we'll put a up a quick post tomorrow with some pics.
The volatility indexes seem to be collapsing, meaning the fear in the market is diminishing. The latest check on the volatility indexes is that they are the lowest of the move which is a warning since the stock indexes are not new highs. Last Thursday's strong 2.5% up move gave plenty of confidence to the new bulls driving volatility indexes down. At the very least this is a bold statement that stocks are in need of a pullback to correct this bullishness. The market will have a tough time moving up if we don't get rid of some of this bullishness.
As our title indicates, the market is taking it's sweet time about going down. We're the only impatient ones. We need to enjoy this as much as possible since a strong up move will be coming as soon as we can eliminate the enthusiasm.
We say enjoy because there is still money to be made on the downside over the next couple of weeks. We are Not encouraging you to trade that way but we do think better prices are coming for those of you who still have money sitting on the sidelines. Two important indicators are the volatility indexes and the SP500 price level. We expect the VXO to go to near 40 and the SP500 to go to near 850. If one or both of these occur, we will be extremely bullish once again.
GDX popped above 40 last week and seemed to have left all of us in the dust. But, we think more buying opportunities exist for GDX, too, although maybe not as low as we saw it last week. We will continue to buy it if it drops back into the 37's and hopefully back into the 36's. That would be a good time to buy. Of course, it is possible it could break below last week's low near 35.50 but we don't think there's a very good chance for that. We would like to see that because we would like to buy more as cheap as possible.
Our other fund, the TLT, a basket of long dated Treasury bonds, traded up strongly on Thursday along with the stock market. This is not a common thing and we expect that the stock market was in the wrong last week with the bond market making a corrective up move starting a couple of weeks ago about the same time as the stock high. This occurred back on June 11th. The SP500 hit its high for the move, so far, and the TLT hit its low on about the same day. When they move together one of them is probably acting wrong and that is probably the stock market.
We promised a few people some pictures of Jackson but they will need to wait until tomorrow, so we'll put a up a quick post tomorrow with some pics.
Wednesday, June 24, 2009
GDX Continues to Lead
Top Line: Stocks failed to generate much in the way of buying this week with the Dow dropping for the fourth day in a row. The position in the market should provide further downside over the next couple of weeks.
[Next post should be Sunday evening.]
The stock market was hoping for good news from the Fed (???) on Wednesday but the Merry men at the Fed didn't deliver much in the way of good buying news. After their announcement, the market struggled to hold its gains. Boeing (BA) was down 5% which kept the Dow from staying positive but the other major indexes did manage to hold gains going into the close.
GDX is the major news of the week. After trading just above 45 early in the month, GDX broke below 36 both Monday and Tuesday this week for a great buying opportunity. We bought some, did you? On Tuesday morning, a gold mining analyst turned bearish on the sector and GDX put in a low around 35.50 before starting a two day run that has taken it back up into the 38's. Apparently, this analyst has Not been reading the Update. We have been suggesting buying GDX under 38 for the past couple of weeks.
If you take a look at a chart of GDX (use BigCharts.com in our links to the left), you will see a steady pattern of lower highs and lower lows since early in June...until today. Today, GDX broke out of that trend but is it a true breakout? Normally, we would like to see a little more volume to confirm the breakout but we didn't get it. This could mean there may be more buying opportunities in the near future.
We still think that today's move in GDX may not allow for a new low for the move because GDX should bottom before the broader market. Tuesday's low near 35.50 may be the low of the move which is about 20% off the 45 high earlier in the month. This 20% down move has given us a clear picture for what the stock market wants to do. We don't think that the stock market will manage to drop 20% from its highs...GDX is much more volatile than the broader market so we expect the market to only drop about 10%. Using our SP500 estimate of 850 from a high of around 955 gives about a 11% estimate.
Taking the comparison one more step, we want to look at the time from the GDX high to yesterday's possible low. That was 16 trading days from June 1st to the 23rd. So, if we go to the SP500 high back on June 11th, today was the 9th trading day since then. That would put us at a low on a projected July 2nd, just the perfect day for a low in our opinion as that is the date of the employment report. Of course, this all speculation, and the way it all plays out Will be different; but, we will be here to pinpoint the low as best we can.
A late addition: We want to emphasize that the end of the quarter could bring some strength to the market over the next few days but we still think the market needs to head down one more time before it can go on a solid run. Nothing is certain, but probabilities are high. Check out the True Contrarian in our links. He has a new post.
[Next post should be Sunday evening.]
The stock market was hoping for good news from the Fed (???) on Wednesday but the Merry men at the Fed didn't deliver much in the way of good buying news. After their announcement, the market struggled to hold its gains. Boeing (BA) was down 5% which kept the Dow from staying positive but the other major indexes did manage to hold gains going into the close.
GDX is the major news of the week. After trading just above 45 early in the month, GDX broke below 36 both Monday and Tuesday this week for a great buying opportunity. We bought some, did you? On Tuesday morning, a gold mining analyst turned bearish on the sector and GDX put in a low around 35.50 before starting a two day run that has taken it back up into the 38's. Apparently, this analyst has Not been reading the Update. We have been suggesting buying GDX under 38 for the past couple of weeks.
If you take a look at a chart of GDX (use BigCharts.com in our links to the left), you will see a steady pattern of lower highs and lower lows since early in June...until today. Today, GDX broke out of that trend but is it a true breakout? Normally, we would like to see a little more volume to confirm the breakout but we didn't get it. This could mean there may be more buying opportunities in the near future.
We still think that today's move in GDX may not allow for a new low for the move because GDX should bottom before the broader market. Tuesday's low near 35.50 may be the low of the move which is about 20% off the 45 high earlier in the month. This 20% down move has given us a clear picture for what the stock market wants to do. We don't think that the stock market will manage to drop 20% from its highs...GDX is much more volatile than the broader market so we expect the market to only drop about 10%. Using our SP500 estimate of 850 from a high of around 955 gives about a 11% estimate.
Taking the comparison one more step, we want to look at the time from the GDX high to yesterday's possible low. That was 16 trading days from June 1st to the 23rd. So, if we go to the SP500 high back on June 11th, today was the 9th trading day since then. That would put us at a low on a projected July 2nd, just the perfect day for a low in our opinion as that is the date of the employment report. Of course, this all speculation, and the way it all plays out Will be different; but, we will be here to pinpoint the low as best we can.
A late addition: We want to emphasize that the end of the quarter could bring some strength to the market over the next few days but we still think the market needs to head down one more time before it can go on a solid run. Nothing is certain, but probabilities are high. Check out the True Contrarian in our links. He has a new post.
Sunday, June 21, 2009
More of the Same Ahead
Top Line: The options expiration last week (quadruple witching, as some call it) provided some support for stocks late last week...but that's over and the next few days should see the sell off reassert itself.
[Our next post should be on Wednesday evening...summer schedule.]
There's not much to add to our comments of last Tuesday because not much has changed since then. The only change is that it's a few days later and the sell off is much closer. We are expecting a strong down move here in the next week to ten days and we are prepared for it.
We have put on some shorts to protect our long positions that we have had for a while. We started buying GDX back but still think that it can go lower. When it does, we will buy more. In the mean time, we are going to continue buying back what we sold. So far we have been buying GDX back in the 37's and hope to get it cheaper than that in the coming days.
For those of you who have not sold anything, this next week may scare you but don't let it scare you out of your positions. If you have additional cash, focus on how to invest that as prices get cheaper and you can afford more stock.
The week ahead includes some more Treasury auctions, about $104 Billion, as well as a Fed meeting. The possibility exists for some volatility.
We normally think the end of the month is a period of strength. If that's true this month, we would expect more selling early in the week with a slight rally into the last few days of the month and quarter. This may not be a normal time due to the position of the market. Still, the market could drop very hard for a few days and then recover some into month end with further selling out of the employment report next month.
The June employment report is scheduled to be released next week on Thursday, July 2nd, because the Fourth of July holiday is observed on Friday the 3rd and the markets are closed. This means we could pack quite a few moves into the next two weeks. Volatility should return.
[Our next post should be on Wednesday evening...summer schedule.]
There's not much to add to our comments of last Tuesday because not much has changed since then. The only change is that it's a few days later and the sell off is much closer. We are expecting a strong down move here in the next week to ten days and we are prepared for it.
We have put on some shorts to protect our long positions that we have had for a while. We started buying GDX back but still think that it can go lower. When it does, we will buy more. In the mean time, we are going to continue buying back what we sold. So far we have been buying GDX back in the 37's and hope to get it cheaper than that in the coming days.
For those of you who have not sold anything, this next week may scare you but don't let it scare you out of your positions. If you have additional cash, focus on how to invest that as prices get cheaper and you can afford more stock.
The week ahead includes some more Treasury auctions, about $104 Billion, as well as a Fed meeting. The possibility exists for some volatility.
We normally think the end of the month is a period of strength. If that's true this month, we would expect more selling early in the week with a slight rally into the last few days of the month and quarter. This may not be a normal time due to the position of the market. Still, the market could drop very hard for a few days and then recover some into month end with further selling out of the employment report next month.
The June employment report is scheduled to be released next week on Thursday, July 2nd, because the Fourth of July holiday is observed on Friday the 3rd and the markets are closed. This means we could pack quite a few moves into the next two weeks. Volatility should return.
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.
[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.
Sunday, June 14, 2009
Market Appears Ready to Roll Over
Top Line: The stock market seems to be on the edge of a downturn. The bond market seems to be ready for a rally.
[We are on a Summer schedule and only posting twice a week and if conditions warrant an extra post. We have a conflict on Wednesday evening so our next post should be Tuesday evening.]
In our last post we mentioned that the long dated T-bonds may be set for a rally coming out of the 30 year T-bond auction on Thursday. Last week the Treasury conducted three auctions culminating in the 30 year auction on Thursday. After Wednesday's presumably disastrous auction, the long bonds were set up for a reversal on Thursday. Our proxy for the long dated bonds is the TLT, an ETF. On Thursday morning TLT traded at 87.45, a year and a half low and then rallied strongly into Friday's high of 90.65 before closing Friday just under 90.
We mentioned that the stock market would react in a little different fashion by doing pretty much the opposite of the long bonds. We said we would consider selling some of our long term holdings if the stock market could make a new high which did happen on Thursday just as the long bond auction was finishing up. We took that opportunity to sell into the strength and sold out of our 401(k) positions as well as a few of our long term stock holdings from purchases made over the past nine months. We did hold some of our positions and we kept our short positions in anticipation of a return to a SP500 level of around 850. From the middle of the day on Thursday to early Friday, the SP500 traded down about 20 points from 956 to 936.
During the past couple of weeks we have sold about 40% of our GDX hoping for a good reentry point in the next few weeks. GDX has been leading the market and should continue to do so. On Friday GDX traded down to 39.28 after trading above 45 earlier in June. We are hoping to buy it back in the 37's or lower. Over the next few days we will start looking at putting in some orders below the market to see if we can get some good prices. We certainly don't want to miss the move into the fall, that would not be good.
The volatility indexes have been weakening somewhat and could start a rebound if stocks fall a little here in the next few weeks. This move up would give us more confidence that a buying opportunity is at hand. Buying stocks right here would be ill advised and we would not recommend it. There are just too many indications that better stock prices are coming in the not to distant future. We will be monitoring the situation closely.
[We are on a Summer schedule and only posting twice a week and if conditions warrant an extra post. We have a conflict on Wednesday evening so our next post should be Tuesday evening.]
In our last post we mentioned that the long dated T-bonds may be set for a rally coming out of the 30 year T-bond auction on Thursday. Last week the Treasury conducted three auctions culminating in the 30 year auction on Thursday. After Wednesday's presumably disastrous auction, the long bonds were set up for a reversal on Thursday. Our proxy for the long dated bonds is the TLT, an ETF. On Thursday morning TLT traded at 87.45, a year and a half low and then rallied strongly into Friday's high of 90.65 before closing Friday just under 90.
We mentioned that the stock market would react in a little different fashion by doing pretty much the opposite of the long bonds. We said we would consider selling some of our long term holdings if the stock market could make a new high which did happen on Thursday just as the long bond auction was finishing up. We took that opportunity to sell into the strength and sold out of our 401(k) positions as well as a few of our long term stock holdings from purchases made over the past nine months. We did hold some of our positions and we kept our short positions in anticipation of a return to a SP500 level of around 850. From the middle of the day on Thursday to early Friday, the SP500 traded down about 20 points from 956 to 936.
During the past couple of weeks we have sold about 40% of our GDX hoping for a good reentry point in the next few weeks. GDX has been leading the market and should continue to do so. On Friday GDX traded down to 39.28 after trading above 45 earlier in June. We are hoping to buy it back in the 37's or lower. Over the next few days we will start looking at putting in some orders below the market to see if we can get some good prices. We certainly don't want to miss the move into the fall, that would not be good.
The volatility indexes have been weakening somewhat and could start a rebound if stocks fall a little here in the next few weeks. This move up would give us more confidence that a buying opportunity is at hand. Buying stocks right here would be ill advised and we would not recommend it. There are just too many indications that better stock prices are coming in the not to distant future. We will be monitoring the situation closely.
Wednesday, June 10, 2009
T-Bonds Smacked Again
Top Line: Market is ready for a significant drop, but first we may see a quick pop.
The market has been treading water since we had that spurt last week Monday, June 1st. During this time the SP500 has traded between 930 and 950. This type of trading is like coiling up some power and it normally releases in a thrust. In this case, we do expect a quick pop to the upside in order to complete this leg of the upside.
We are giving some serious thought to lightening up on some of our long positions, especially in our 401(k) where we are forced to be in index funds. This pop may be an opportunity to do some selling, especially if the prices get high enough. Of course, for our funds (ETF's), we can take full advantage of the intraday moves whereas with the 401(k) we are forced to trade at the end of the day.
GDX has been giving us some guidance to sell other positions. GDX topped out just over 45 last week Monday and we did sell about a quarter of our position just under 45. We almost bought some back when it dipped into the 30's in the last few days but decided to wait. That's beside the point...which is really that GDX leads the market and it dropped about 10% in a week and probably has some more to go. Yes, GDX is probably more volatile than the broader market but we are more concerned about the direction at this point.
The other two major indicators we have been mentioning here at the Update are the T-bonds and the volatility indexes. Let's start with the T-bonds. This week the Treasury is selling more bonds and today's 10 year auction seemed to be a bit of a dog.
Just to give you some perspective, our proxy for the long bond is TLT, an ETF. TLT dropped to 87.56, the lowest price for a year and a half. And, TLT traded at 123.15 back in late December. Yes, that's a big drop, nearly 30%. Ouch.
Thursday (today for you) the 30 year bonds are being offered. The question is, "What will the long bond do after the auction?" Since the long bond has been trashed by most media outlets, we expect that the sellers are about done. So, with the possibility of further selloff going into the auction, the stock market could actually pop in the morning. We can't be sure about this timing or if the market will actually pop but the bonds are in a good position to support such a move.
Looking at the volatility indexes, they are in the high 20's and represent a good place to turn around and head back up to near 40. This indicator can't help us much on Thursday with timing the market move but we do think that the number is bound to go back up in any market decline. We certainly would like to be in a position to buy stocks when these indexes get near 40.
Ok, what to do? We think there are many different ideas going on here. We do think that the "stay put" or the "stand pat" philosophy is a mighty fine one since we do think that there is a lot more upside going into the fall. None of this changes our position that the SP500 will be 1234 around 9-9-09.
If you want to Do something, you could sell some of your positions like in your 401(k) but not all of them. That way, you can do a maybe we get a decline and if so buy some good bargains as they show up in the next few weeks.
You can sell out your entire position and just wait for good prices...we don't prefer this approach because of the obvious difficulty to get back in at better prices. You can never know what will really happen. You'll need to be more aggressive about getting back in and we do not want anyone to Chase stocks when they are buying them.
For us, we have already taken some short positions as well as having sold some of our holdings to raise some cash. If we do get some more rally in the near future, we will attempt to sell some more of our long term holdings. This would be in the hope that we can buy them back at better prices. The only difference tonight is that we are seriously considering moving some/most/all of our 401(k) assets to bonds for a while. These assets are at a high and could be purchased later if and when the SP500 drops.
Our position states that the SP500 will drop to around 850 in the next down move before rallying into the fall. Any drop will bring in some buyers so there will be a choppy drop speckled with a few hard down days to reinforce the bears argument. When the bears get mentioned in the media again, we will start looking to buy. Sounds easy enough. Right...
Remember we are on a summer schedule and will be posting Wednesday and Sunday evenings. If something special happens, we might post on other evenings as well. If we get this pop tomorrow we may put up a short post tomorrow, otherwise we'll be back on Sunday evening.
The market has been treading water since we had that spurt last week Monday, June 1st. During this time the SP500 has traded between 930 and 950. This type of trading is like coiling up some power and it normally releases in a thrust. In this case, we do expect a quick pop to the upside in order to complete this leg of the upside.
We are giving some serious thought to lightening up on some of our long positions, especially in our 401(k) where we are forced to be in index funds. This pop may be an opportunity to do some selling, especially if the prices get high enough. Of course, for our funds (ETF's), we can take full advantage of the intraday moves whereas with the 401(k) we are forced to trade at the end of the day.
GDX has been giving us some guidance to sell other positions. GDX topped out just over 45 last week Monday and we did sell about a quarter of our position just under 45. We almost bought some back when it dipped into the 30's in the last few days but decided to wait. That's beside the point...which is really that GDX leads the market and it dropped about 10% in a week and probably has some more to go. Yes, GDX is probably more volatile than the broader market but we are more concerned about the direction at this point.
The other two major indicators we have been mentioning here at the Update are the T-bonds and the volatility indexes. Let's start with the T-bonds. This week the Treasury is selling more bonds and today's 10 year auction seemed to be a bit of a dog.
Just to give you some perspective, our proxy for the long bond is TLT, an ETF. TLT dropped to 87.56, the lowest price for a year and a half. And, TLT traded at 123.15 back in late December. Yes, that's a big drop, nearly 30%. Ouch.
Thursday (today for you) the 30 year bonds are being offered. The question is, "What will the long bond do after the auction?" Since the long bond has been trashed by most media outlets, we expect that the sellers are about done. So, with the possibility of further selloff going into the auction, the stock market could actually pop in the morning. We can't be sure about this timing or if the market will actually pop but the bonds are in a good position to support such a move.
Looking at the volatility indexes, they are in the high 20's and represent a good place to turn around and head back up to near 40. This indicator can't help us much on Thursday with timing the market move but we do think that the number is bound to go back up in any market decline. We certainly would like to be in a position to buy stocks when these indexes get near 40.
Ok, what to do? We think there are many different ideas going on here. We do think that the "stay put" or the "stand pat" philosophy is a mighty fine one since we do think that there is a lot more upside going into the fall. None of this changes our position that the SP500 will be 1234 around 9-9-09.
If you want to Do something, you could sell some of your positions like in your 401(k) but not all of them. That way, you can do a maybe we get a decline and if so buy some good bargains as they show up in the next few weeks.
You can sell out your entire position and just wait for good prices...we don't prefer this approach because of the obvious difficulty to get back in at better prices. You can never know what will really happen. You'll need to be more aggressive about getting back in and we do not want anyone to Chase stocks when they are buying them.
For us, we have already taken some short positions as well as having sold some of our holdings to raise some cash. If we do get some more rally in the near future, we will attempt to sell some more of our long term holdings. This would be in the hope that we can buy them back at better prices. The only difference tonight is that we are seriously considering moving some/most/all of our 401(k) assets to bonds for a while. These assets are at a high and could be purchased later if and when the SP500 drops.
Our position states that the SP500 will drop to around 850 in the next down move before rallying into the fall. Any drop will bring in some buyers so there will be a choppy drop speckled with a few hard down days to reinforce the bears argument. When the bears get mentioned in the media again, we will start looking to buy. Sounds easy enough. Right...
Remember we are on a summer schedule and will be posting Wednesday and Sunday evenings. If something special happens, we might post on other evenings as well. If we get this pop tomorrow we may put up a short post tomorrow, otherwise we'll be back on Sunday evening.
Sunday, June 07, 2009
Birth/Death Model Provides Lift to Jobs
Top Line: We still expect a quick selloff (SP500 to 850) before we see much more buying. Our expectation for higher prices later this year remains in tact, that is, the SP500 going to 1234 on 9-9-09.
The employment report caused a burst of buying at the opening of trade of Friday. This was quickly swamped with sell orders but eventually the flat line of the past few days kicked in and the stocks idled the rest of the day. We don't think fundamentals are too important in this market but the lower lost jobs for May were created out of thin air in the birth/death model. This is something that estimates the creation of new small businesses or the dissolution of same and this past month it was responsible for over 200K jobs. We're not so sure about that number.
The real action has been in gold and T-bonds, both of which were down on Friday. Gold was down about $20 with GDX down in tandem. The TLT, a long dated T-bond ETF, was down under 90 for the first time since last fall. We have purchased a small position in TLT for a quick trade...possibly for a week or two. This is conjunction with our thought that the bonds have just gone down too hard, too fast.
Since our last post, we also were able to purchase some more UNG (see last post for details) with its breathtaking plunge below 13.50 on Thursday morning. We scrambled to get a trade in but had to pay more than 13.50. The price low was a good entry point. We think that UNG is so oversold that the upcoming correction should leave UNG pretty much unscathed.
The employment report may stand as the high point for the next few weeks. If we exceed that top, then our correction theory may have already happened or it may not happen. We fully expect the correction due to the bullishness that exists in the media and among traders generally. The public has become interested in the market again which is a sign of being overbought.
We expect that there will be a great buying opportunity, the last one for some time, coming up in the month of June for those of you who have not purchased enough stocks. We will watch carefully and try to provide timely information for you. We have decided to post twice a week, on Sunday evening and Wednesday evening, but if something like a buying opportunity shows up in between those days, we will likely post something.
The employment report caused a burst of buying at the opening of trade of Friday. This was quickly swamped with sell orders but eventually the flat line of the past few days kicked in and the stocks idled the rest of the day. We don't think fundamentals are too important in this market but the lower lost jobs for May were created out of thin air in the birth/death model. This is something that estimates the creation of new small businesses or the dissolution of same and this past month it was responsible for over 200K jobs. We're not so sure about that number.
The real action has been in gold and T-bonds, both of which were down on Friday. Gold was down about $20 with GDX down in tandem. The TLT, a long dated T-bond ETF, was down under 90 for the first time since last fall. We have purchased a small position in TLT for a quick trade...possibly for a week or two. This is conjunction with our thought that the bonds have just gone down too hard, too fast.
Since our last post, we also were able to purchase some more UNG (see last post for details) with its breathtaking plunge below 13.50 on Thursday morning. We scrambled to get a trade in but had to pay more than 13.50. The price low was a good entry point. We think that UNG is so oversold that the upcoming correction should leave UNG pretty much unscathed.
The employment report may stand as the high point for the next few weeks. If we exceed that top, then our correction theory may have already happened or it may not happen. We fully expect the correction due to the bullishness that exists in the media and among traders generally. The public has become interested in the market again which is a sign of being overbought.
We expect that there will be a great buying opportunity, the last one for some time, coming up in the month of June for those of you who have not purchased enough stocks. We will watch carefully and try to provide timely information for you. We have decided to post twice a week, on Sunday evening and Wednesday evening, but if something like a buying opportunity shows up in between those days, we will likely post something.
Wednesday, June 03, 2009
Drop May Have Started Today
Top Line: The stock market did a major head fake over the past week and today reality started to creep back in. Expect more downside directly ahead.
The most dramatic downside moves on Wednesday were in the commodities, which of course is what makes up most of our portfolio. We have some downside protection with our short positions but they can't make up for the huge down moves in commodities. Still, the commodities have been leading the broad market and this time they are leading it lower.
As you all know, our largest holding is GDX, a gold mining ETF, and it dropped from near 45 this week to 41.30 on its low today. For those of you who have missed out on GDX, we hope you did not buy it at 45 over the past few days. There may be an entry point coming up as the market drop continues. We would suggest that GDX will bottom first, maybe even ahead of gold itself. When GDX starts to make a positive move, in a week or two, that will give us a great early indication that the stock market is about to turn around.
Over the next few weeks, we (still) expect the SP500 to drop to the 850 range, which ia still a ways away from today's close of 931. This drop needs to happen because of all the recent bullishness that came out of just the latest week of the rally. General Public confidence of upside is a sure sign of price drops. When someone says, "I think stocks are going up", we would think that meant stocks Have Already gone up.
The bulls have taken over the sentiment and this attitude needs an adjustment. That will come as the market drops about 10% creating the same type of panic that people felt over the past year only in a mini version. We here at the Update will be watching our two favorite indicators at this time, the Treasury bonds and the volatility indexes, particularly the VXO which we have mentioned several times.
The T-bonds seem to have found a short term bottom. Our proxy for long dated Treasuries is TLT and that has been trading in the 90 to 92 range for several days. Should this pattern hold, we would expect that the TLT could move back up to near 100 or about 10%. From there the prices should drop to a much lower level as the stock market moves up.
Right now the VXO is around 30 and we would like to see this move up to 40 before we try to start buying our favorite stocks. As time goes by this month, these opportunities will only be available for a short period of time. Why? There are recent buyers that have come into the party very late in the price move and they need to feel some pain. Where were they in March when prices bottomed? At the same time, there are many entities that are looking to buy on a pullback. These people can't be given much of a chance either. The market won't give them much of an opportunity.
Our main goal will be to buy before prices go up which means that we will be paying higher prices and watch prices drop to the lows. We don't want to be too early but likewise we won't want to be too late. If you see these three leading indicators then you will probably see some good prices in your favorite stocks. We will be watching GDX to see if we can get in below 40 since we think the 30's will be a great support area.
We had a question off line today and would like to present the concept here. The question revolved around nat gas (natural gas) specifically whether it's a good buy right now. UNG is an ETF that corresponds to the price of natural gas. Today nat gas dropped by 10% during the day and represents a good value. If prices come down in the next few weeks from here, we would certainly buy some more. We actually bought some today. We had sold some on Monday near 16 in our trading account and decided to replace it here in the 14's again. If it goes down some more, we will buy more.
The question related to whether the fundamentals were strong enough to justify higher nat gas prices. Would economic contraction cause nat gas to decline further rather than go up? Our answer is that the economic contraction doesn't induce much real decline in usage of the product. Think of last year's price of oil near $145 a barrel. When the price dropped to $35, it wasn't because demand dropped by 60%, it was because of the herd mentality. Likewise, nat gas demand isn't driven by price too much. Yes, some will turn to nat gas to heat their homes or their water because it's now cheaper than other forms of energy for the same BTUs.
We recommend that if you are buying this or any stock over the next few weeks, please buy a small portion at a time and buy at Lower prices than your last. So, we paid 14.75 today and then bought some more at 14.32 and then bought more at 14.02. These prices now average much better than if we had purchased our entire position at 14.75. If you want more info on how to do this...leave a question in the comment section or contact me directly if you know how.
The most dramatic downside moves on Wednesday were in the commodities, which of course is what makes up most of our portfolio. We have some downside protection with our short positions but they can't make up for the huge down moves in commodities. Still, the commodities have been leading the broad market and this time they are leading it lower.
As you all know, our largest holding is GDX, a gold mining ETF, and it dropped from near 45 this week to 41.30 on its low today. For those of you who have missed out on GDX, we hope you did not buy it at 45 over the past few days. There may be an entry point coming up as the market drop continues. We would suggest that GDX will bottom first, maybe even ahead of gold itself. When GDX starts to make a positive move, in a week or two, that will give us a great early indication that the stock market is about to turn around.
Over the next few weeks, we (still) expect the SP500 to drop to the 850 range, which ia still a ways away from today's close of 931. This drop needs to happen because of all the recent bullishness that came out of just the latest week of the rally. General Public confidence of upside is a sure sign of price drops. When someone says, "I think stocks are going up", we would think that meant stocks Have Already gone up.
The bulls have taken over the sentiment and this attitude needs an adjustment. That will come as the market drops about 10% creating the same type of panic that people felt over the past year only in a mini version. We here at the Update will be watching our two favorite indicators at this time, the Treasury bonds and the volatility indexes, particularly the VXO which we have mentioned several times.
The T-bonds seem to have found a short term bottom. Our proxy for long dated Treasuries is TLT and that has been trading in the 90 to 92 range for several days. Should this pattern hold, we would expect that the TLT could move back up to near 100 or about 10%. From there the prices should drop to a much lower level as the stock market moves up.
Right now the VXO is around 30 and we would like to see this move up to 40 before we try to start buying our favorite stocks. As time goes by this month, these opportunities will only be available for a short period of time. Why? There are recent buyers that have come into the party very late in the price move and they need to feel some pain. Where were they in March when prices bottomed? At the same time, there are many entities that are looking to buy on a pullback. These people can't be given much of a chance either. The market won't give them much of an opportunity.
Our main goal will be to buy before prices go up which means that we will be paying higher prices and watch prices drop to the lows. We don't want to be too early but likewise we won't want to be too late. If you see these three leading indicators then you will probably see some good prices in your favorite stocks. We will be watching GDX to see if we can get in below 40 since we think the 30's will be a great support area.
We had a question off line today and would like to present the concept here. The question revolved around nat gas (natural gas) specifically whether it's a good buy right now. UNG is an ETF that corresponds to the price of natural gas. Today nat gas dropped by 10% during the day and represents a good value. If prices come down in the next few weeks from here, we would certainly buy some more. We actually bought some today. We had sold some on Monday near 16 in our trading account and decided to replace it here in the 14's again. If it goes down some more, we will buy more.
The question related to whether the fundamentals were strong enough to justify higher nat gas prices. Would economic contraction cause nat gas to decline further rather than go up? Our answer is that the economic contraction doesn't induce much real decline in usage of the product. Think of last year's price of oil near $145 a barrel. When the price dropped to $35, it wasn't because demand dropped by 60%, it was because of the herd mentality. Likewise, nat gas demand isn't driven by price too much. Yes, some will turn to nat gas to heat their homes or their water because it's now cheaper than other forms of energy for the same BTUs.
We recommend that if you are buying this or any stock over the next few weeks, please buy a small portion at a time and buy at Lower prices than your last. So, we paid 14.75 today and then bought some more at 14.32 and then bought more at 14.02. These prices now average much better than if we had purchased our entire position at 14.75. If you want more info on how to do this...leave a question in the comment section or contact me directly if you know how.
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.
[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 bigcharts.com 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.
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 bigcharts.com 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.
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.
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.
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 into...so 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.
[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 into...so 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.
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