Top Line: The stock market continues to cling to the high prices. With a possible burst up to fresh highs, the market would be free to go back down. Or, it could just go down from here.
The past few days have seen the SP500 trade in a very tight 15 point range, about 967 to 982. This type of action sometimes leads to a pop and then a good sized drop should follow. If not, the market is ready to drop about 10% over the next month or so.
Yes, we know we missed the rally over the past couple of weeks because we didn't heed our own advice, but the current message is fairly clear...down move ahead. The bullishness in the media is too strong to think anything else, in our contrarian opinion.
GDX continues to go down signalling a drop for the market. The volatility indexes are refusing to go down anymore. The dollar is close to a low and Treasury bonds are holding or even getting stronger.
The Treasury auctions of the past couple of days did not go as well as they thought Monday's auction went but still the long bond is stronger. The Treasury is trying to sell a mountain of debt this week and still the long bond holds its price.
We had a question in an email today that related to a 7-9 year time horizon and what we think would be a good investment for this period. Please understand that the best advice we can offer at the moment, or at any time really, is to buy value and sell strength. Over the next 7-9 years, or 10 years as we expect, the market will be in a roller coaster ride with the ultimate lows to be registered in the 7-9 year period probably with a higher low in about 10 years.
In this environment, we think that buy and hold is a poor strategy no matter who the buyer is. The next 10 years will present several opportunities to make very high percentage moves such as have been made in the past year or two. Buy and hold will come back as soon as the media and your friends start telling you they will never put another dollar into the market again. That should happen after they've lost a lot of money and be in about 2019.
For now, if you think a particular stock looks good, because it is cheap and it has the potential to run up a long ways, then by all means buy it. We don't see many stocks like that now because we think the market is going down for the next few weeks.
The stock that was mentioned was a real estate investment trust (REIT) which as you might imagine invests in real estate. Our particular position is that real estate is to be avoided in this market but we do Not follow REIT's, although we've heard of the one mentioned. In this case the dividend is near 15% which seems too good to be true. Like we said, we don't follow these vehicles and can not give you good advice on them.
What we can do is to advise you to be nimble with those funds. Assume that the T-bonds will perform in the opposite direction as stocks and trade back and forth between the two investments as conditions warrant. Or, come back here and we'll try to nail down the timing for you...or maybe we'll just try do that and you can take or leave our advice. Right now, we're headed down in our opinion so holding TLT may be an ok idea for about a month. Then we might switch to GDX or some other commodity for the wild ride we expect from August to October or November.
Wednesday, July 29, 2009
Sunday, July 26, 2009
Bulls Are Out In Big Numbers
Top Line: The market didn't take long to jump with the Dow jumping up over 9000. We are looking for a pullback. When it occurs, we will estimate the distance it can travel.
The stock market jumped with the SP500 going from about 870 to last week's 980 about 13% in just two weeks. We are not happy to have missed this. Now we need to know if there is some downside and how much. We do think the downside is more possible than apparent. We have our reasons for this thinking...
The first is that the volatility indexes are having trouble dropping much more as the market jumped. With the SP500 jumping up 30 points last week while the volatility indexes hardly moved.
Our favorite stock for the 2009 is GDX and it has been our leader since October. With GDX not participating in the rally, as in, not making it back to 45, we think the market needs to back off a little to allow GDX to get back into its lead role.
Also, there seems to be a lot of bullishness. No one is really considering that the market can go down from here. If it does, the prices won't go down much at all, or so they think. These things raise the hair on the back of our contrarian necks.
Lastly, we don't think that the T-bond market is giving a clear signal of lower prices. They bottomed back about a month ago and even with the stock market continuing to march higher, the T-bonds have not been inclined to decline.
We will keep an eye on this market over the next few days.
The stock market jumped with the SP500 going from about 870 to last week's 980 about 13% in just two weeks. We are not happy to have missed this. Now we need to know if there is some downside and how much. We do think the downside is more possible than apparent. We have our reasons for this thinking...
The first is that the volatility indexes are having trouble dropping much more as the market jumped. With the SP500 jumping up 30 points last week while the volatility indexes hardly moved.
Our favorite stock for the 2009 is GDX and it has been our leader since October. With GDX not participating in the rally, as in, not making it back to 45, we think the market needs to back off a little to allow GDX to get back into its lead role.
Also, there seems to be a lot of bullishness. No one is really considering that the market can go down from here. If it does, the prices won't go down much at all, or so they think. These things raise the hair on the back of our contrarian necks.
Lastly, we don't think that the T-bond market is giving a clear signal of lower prices. They bottomed back about a month ago and even with the stock market continuing to march higher, the T-bonds have not been inclined to decline.
We will keep an eye on this market over the next few days.
Wednesday, July 22, 2009
Rally is Getting Very Tired
Top Line: Unbelievable...NASDAQ is up eleven days in a row. There is an end to such moves.
Yes, the Dow was down on the day after its own seven day up move. Is it possible that the market could turn down for a few days?
You may be feeling it, too, all the bullishness after a big up move. Where is that bullishness before the up move? Normally, people don't get bullish until After the move. Complacency is at a peak as well as measured by the volatility indexes. Maybe we should say Fear is at a low point as people now believe the market will go up some more.
We don't believe that the market has much upside in the short term but now the question is more about how low can it go. The answer is that the market can go down just like it went up. As people notice the market has gone down, they will get more bearish...amazing how this works.
We look back over the past couple of weeks and notice our own advice about how the market would go down to about 850 and probably lower. Then there was the talk about how the world was expecting a break down from the supposed head and shoulders top and were setting up for such an event. We thought that as the market dropped below 880, people would start anticipating such a move down to 800 in the SP500. We also mentioned that these short sellers would not be rewarded for their thought process because the market would not fulfill the normal head and shoulders pattern. We should read what we write and take that advice.
But, what to do now after a 10% up move in two weeks? We believe that the path of least resistance really is down with so many bullish, or should we say relieved, stock owners. The volatility indexes have struggled to go down although they have dropped a little over the past few sessions. This summer rally is almost over and we'll have to wait and see what kind of down move we can get. The next two days should be revealing.
Back on Sunday.
Yes, the Dow was down on the day after its own seven day up move. Is it possible that the market could turn down for a few days?
You may be feeling it, too, all the bullishness after a big up move. Where is that bullishness before the up move? Normally, people don't get bullish until After the move. Complacency is at a peak as well as measured by the volatility indexes. Maybe we should say Fear is at a low point as people now believe the market will go up some more.
We don't believe that the market has much upside in the short term but now the question is more about how low can it go. The answer is that the market can go down just like it went up. As people notice the market has gone down, they will get more bearish...amazing how this works.
We look back over the past couple of weeks and notice our own advice about how the market would go down to about 850 and probably lower. Then there was the talk about how the world was expecting a break down from the supposed head and shoulders top and were setting up for such an event. We thought that as the market dropped below 880, people would start anticipating such a move down to 800 in the SP500. We also mentioned that these short sellers would not be rewarded for their thought process because the market would not fulfill the normal head and shoulders pattern. We should read what we write and take that advice.
But, what to do now after a 10% up move in two weeks? We believe that the path of least resistance really is down with so many bullish, or should we say relieved, stock owners. The volatility indexes have struggled to go down although they have dropped a little over the past few sessions. This summer rally is almost over and we'll have to wait and see what kind of down move we can get. The next two days should be revealing.
Back on Sunday.
Sunday, July 19, 2009
Option Expiration Punishes Shorts/Puts
Top Line: The market should be close to a high with some selling coming back into the market this week.
We have not been doing too well calling this market the last week or two. We look back on our comments about the anticipated head and shoulders top formation and wonder why we didn't pay more attention to ourselves. We said that some would go short around 880 or 870 in the SP500 and the market would not give them what they wanted, a quick drop to 800. Instead, the market did drop to just below 870 and then it jumped to where it is now, about 935.
So, what is going on? The volatility indexes are trying to tell us that the market is overbought. This means that we should not be considering buying at this time, unless it is something that will go up if the market goes down. The last few days, the volatility indexes have gone down but there doesn't seem be much in the way of further progress. The volatility indexes by themselves would say the market is heading down.
Last Friday was options' expiration which the market seemed to think needed to punish the puts that were expecting to have a quick 10% drop after that head and shoulders top.
Our attitude is that the market still needs to go down, at least a little from here. We will continue to monitor just how much downside there may be. It still is possible to get this market back down to that 850 we've been talking about for a while now but we will stay focused to see just how far any downside will take us.
We have not been doing too well calling this market the last week or two. We look back on our comments about the anticipated head and shoulders top formation and wonder why we didn't pay more attention to ourselves. We said that some would go short around 880 or 870 in the SP500 and the market would not give them what they wanted, a quick drop to 800. Instead, the market did drop to just below 870 and then it jumped to where it is now, about 935.
So, what is going on? The volatility indexes are trying to tell us that the market is overbought. This means that we should not be considering buying at this time, unless it is something that will go up if the market goes down. The last few days, the volatility indexes have gone down but there doesn't seem be much in the way of further progress. The volatility indexes by themselves would say the market is heading down.
Last Friday was options' expiration which the market seemed to think needed to punish the puts that were expecting to have a quick 10% drop after that head and shoulders top.
Our attitude is that the market still needs to go down, at least a little from here. We will continue to monitor just how much downside there may be. It still is possible to get this market back down to that 850 we've been talking about for a while now but we will stay focused to see just how far any downside will take us.
Wednesday, July 15, 2009
Volatility Puzzle
Top Line: A lot can happen in a couple days. The market has certainly denied the head and shoulders top so many were predicting with a resounding rally. The rally shouldn't have too much more to go if any.
We only have time to discuss the volatility index puzzle. With the market running up about 3% across the board on Wednesday, why did the VIX move up by the end of the day? That's a good question and one we are not sure that we have a good answer for but we will give it shot.
INTC (Intel) announced what the market thought was the news of the century so there was a huge rally right away in the morning trade. This caused the VIX to drop from about 26 just before the INTC announcement on Tuesday to just under 24 as the market opened. The last time the VIX was that low was back in early September when the SP500 was right around 1250. This is an extreme condition with bullishness very high.
Some amount of realism needed to come back into the options market and as the day wore on and stocks continued to grind higher and higher, the options traders were pushing premiums up causing the volatility indexes to move higher as well. This is an odd event by itself except that taken in the context of the sheer low level of the index is enough to convince us that the market has not finished its work on the downside.
Taken by itself, the volatility index increase could be very bullish but we now need to see what other indications are going to turn. We expect the market to actually head lower on Thursday morning and we think the Treasury bonds will turn higher after a thorough pounding the last few days. As the rest of the players in the game make up their minds as to what to do, we will then have a clear picture of what's going on.
More on Sunday evening.
PS Elliott Wave is having their famous "free week". Take advantage of that.
Go to ElliottWave.com to get started.
We only have time to discuss the volatility index puzzle. With the market running up about 3% across the board on Wednesday, why did the VIX move up by the end of the day? That's a good question and one we are not sure that we have a good answer for but we will give it shot.
INTC (Intel) announced what the market thought was the news of the century so there was a huge rally right away in the morning trade. This caused the VIX to drop from about 26 just before the INTC announcement on Tuesday to just under 24 as the market opened. The last time the VIX was that low was back in early September when the SP500 was right around 1250. This is an extreme condition with bullishness very high.
Some amount of realism needed to come back into the options market and as the day wore on and stocks continued to grind higher and higher, the options traders were pushing premiums up causing the volatility indexes to move higher as well. This is an odd event by itself except that taken in the context of the sheer low level of the index is enough to convince us that the market has not finished its work on the downside.
Taken by itself, the volatility index increase could be very bullish but we now need to see what other indications are going to turn. We expect the market to actually head lower on Thursday morning and we think the Treasury bonds will turn higher after a thorough pounding the last few days. As the rest of the players in the game make up their minds as to what to do, we will then have a clear picture of what's going on.
More on Sunday evening.
PS Elliott Wave is having their famous "free week". Take advantage of that.
Go to ElliottWave.com to get started.
Sunday, July 12, 2009
Getting Close to a Short Term Low in Terms of Time
Top Line: Stock prices could potentially be putting in their lows in the next several trading days, let's say about ten days.
We received a question in last week's comment section which we have not answered. We thought it deserves a couple of paragraphs in tonight's post.
The question is, "What should we do if the SP500 drops below 850?"
The first answer is that we Expect the SP500 to drop below 850 and that's where we want to do our buying. The question is more like what if the SP500 drops to, say, 750, which of course it could but we think that is for the "next" time down. That seems like a long ways to go but we can't say that it can't because the market is always capable of multiple personalities.
The amateur chartists are telling us that the SP500 has just experienced a head and shoulders top which should lead to a "measured move" down to about 800. Right now, we are trading near the neckline around 880 and a good break of that should, in these technicians minds at least, produce a sharp move down to just under 800.
What this thinking causes them to do is to short stocks right after the market makes a solid move below 880 or maybe 870. This selling could lead to a quick drop just below 850 but we don't think these new chartists will be able to capitalize on the "great" short idea because the market will not accommodate their analysis. When too many expect something, it is likely Not to happen.
Should you "hold off" until we get down to another support level? We would say that anything under the SP500 850 level should represent good buying opportunities. If a drop like that is accompanied by a surge in the volatility indexes, say VXO goes to 38 or 42, then we would say it is a great time to buy.
Here's what we expect will happen over the next two to three weeks. We have been well served by Elliott wave in the past and now we think it appropriate to go back to that model. We assume that the market will put in a bottom in the next three weeks and it will go something like a reverse head and shoulders with a sharp move down with a rally following. Then another sharp plunge to a new low and then a rally. This would be followed by another drop to a low similar to the first low.
In Elliott wave terms we are probably coming into a third wave low which will lead to a fourth wave bounce and then a fifth wave low, The low for the move. This would then be followed by a strong rally which would be a wave one up which would be followed by a wave two back down. From there we would expect you had better be in or you will miss the biggest rally in the shortest period of your life.
We will guess that the third wave would spike down below 850 and then the fourth would rally back above 850 but stay below 875 and then fall in a fifth wave to about 835 or so. Then we will have a rally back to about 880 or maybe 900 indicating that maybe something different is going on to those savvy few. This spike needs to be sold and we expect it to be sold down just about to 850 but maybe not.
The way to trade this is to simply figure out What you want to buy and how much you want to buy and then of course picking your prices. With the potential of three good buying opportunities coming up, we should be taking full advantage of them. For the stocks you want to buy, it seems likely that they will put in their bottoms in or near one of those three lows. You won't know which until after the fact. That means you have to take a shot at buying for the right price by being bold and entering orders that are GTC (good till canceled).
We have a difficult time doing that because we always think we can get better prices than just guessing in the evening when you are putting in your orders. We do think if you are buying a stock, you should only pick up part of your position on the first decline and more on the second decline and maybe more on the third, if they all develop.
As we view the overnight markets, they are mostly down including the US futures. The Japanese have just announced that deflation is still going on there, wholesale prices dropped 6.6% in June. There are other news items out of Japan and other Asian countries, perceived as bad for the stock market. Here in the US, the second quarter earnings are starting to be released which is giving some pause for concern. We think that will be part of the driver for low prices coming up but that after a while the market will begin to look past them to brighter days ahead.
We think it is time to start getting ready for a great buying opportunity for stocks. This could be the last good time to buy until after we go down next year. And, we think it is essential to financial success to be long coming out of these July lows.
We received a question in last week's comment section which we have not answered. We thought it deserves a couple of paragraphs in tonight's post.
The question is, "What should we do if the SP500 drops below 850?"
The first answer is that we Expect the SP500 to drop below 850 and that's where we want to do our buying. The question is more like what if the SP500 drops to, say, 750, which of course it could but we think that is for the "next" time down. That seems like a long ways to go but we can't say that it can't because the market is always capable of multiple personalities.
The amateur chartists are telling us that the SP500 has just experienced a head and shoulders top which should lead to a "measured move" down to about 800. Right now, we are trading near the neckline around 880 and a good break of that should, in these technicians minds at least, produce a sharp move down to just under 800.
What this thinking causes them to do is to short stocks right after the market makes a solid move below 880 or maybe 870. This selling could lead to a quick drop just below 850 but we don't think these new chartists will be able to capitalize on the "great" short idea because the market will not accommodate their analysis. When too many expect something, it is likely Not to happen.
Should you "hold off" until we get down to another support level? We would say that anything under the SP500 850 level should represent good buying opportunities. If a drop like that is accompanied by a surge in the volatility indexes, say VXO goes to 38 or 42, then we would say it is a great time to buy.
Here's what we expect will happen over the next two to three weeks. We have been well served by Elliott wave in the past and now we think it appropriate to go back to that model. We assume that the market will put in a bottom in the next three weeks and it will go something like a reverse head and shoulders with a sharp move down with a rally following. Then another sharp plunge to a new low and then a rally. This would be followed by another drop to a low similar to the first low.
In Elliott wave terms we are probably coming into a third wave low which will lead to a fourth wave bounce and then a fifth wave low, The low for the move. This would then be followed by a strong rally which would be a wave one up which would be followed by a wave two back down. From there we would expect you had better be in or you will miss the biggest rally in the shortest period of your life.
We will guess that the third wave would spike down below 850 and then the fourth would rally back above 850 but stay below 875 and then fall in a fifth wave to about 835 or so. Then we will have a rally back to about 880 or maybe 900 indicating that maybe something different is going on to those savvy few. This spike needs to be sold and we expect it to be sold down just about to 850 but maybe not.
The way to trade this is to simply figure out What you want to buy and how much you want to buy and then of course picking your prices. With the potential of three good buying opportunities coming up, we should be taking full advantage of them. For the stocks you want to buy, it seems likely that they will put in their bottoms in or near one of those three lows. You won't know which until after the fact. That means you have to take a shot at buying for the right price by being bold and entering orders that are GTC (good till canceled).
We have a difficult time doing that because we always think we can get better prices than just guessing in the evening when you are putting in your orders. We do think if you are buying a stock, you should only pick up part of your position on the first decline and more on the second decline and maybe more on the third, if they all develop.
As we view the overnight markets, they are mostly down including the US futures. The Japanese have just announced that deflation is still going on there, wholesale prices dropped 6.6% in June. There are other news items out of Japan and other Asian countries, perceived as bad for the stock market. Here in the US, the second quarter earnings are starting to be released which is giving some pause for concern. We think that will be part of the driver for low prices coming up but that after a while the market will begin to look past them to brighter days ahead.
We think it is time to start getting ready for a great buying opportunity for stocks. This could be the last good time to buy until after we go down next year. And, we think it is essential to financial success to be long coming out of these July lows.
Wednesday, July 08, 2009
Serious Planning Needs to Start
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.
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.
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.
Subscribe to:
Posts (Atom)
