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- Hope you enjoyed that news about Freddie Mac...
- What A Day
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What A Day
What a day for the markets and the US dollar. The Dow smoked up 300 pts and the US dollar demolished foreign currencies across the board. Oil fell 3%, gold fell........heck every commodity fell. Today highlighted two major actions--capitulation and intervention. As i warned a couple weeks ago, the central banks worldwide are intervening on behalf of the US dollar, and today currency investors capitulated and gave in to the onslaught creating huge gaps down for the euro, the pound, the franc--all of them. The charts look as if these currencies fell off a skyscraper. With oil already in correction mode, and carrying a strong correlation to the US dollar, it also tanked. Obviously all of these factors are great for the US market on a short term basis. Foreign money has been leaving the US stock market in droves partly because of the currency decline, and now it is likely that the sovereign wealth funds--fattened by oil revenues-- will not only keep some money in, but start putting it to work.
But be forewarned, we need evidence of significant bullish action before considering a buy and hold campaign. The market is having a short term rally within a bear market and deservedly so----sentiment was overly negative, and we have reversed the oil overhand and the US dollar slide for now. Lets keep fundamentals aside, and point out that from a technical perspective the market is badly damaged and well below its long term averages. The charts of most sectors indicate that they are in a long term downtrend. The only exception is health care--highlighted a couple weeks ago. Even there, the action is focused primarily on the biotechs, which are notoriously volatile. I like this area, but a true bull market must be driven by more than one sector. In prior bear markets, there were glimpses of hope in certain sectors, and those that bought before confirming broader market action got killed. There will be many countertrend rallies and no one knows how long things will last.Furthermore, it is worth noting that the long term charts of the currencies and oil and gold are still in bull market territory, and until we see much more significant declines for a much longer time period, the game probably isn't over there just yet.
I still like STJ, and JNJ also looks good as conservative plays in health care. Just be sure to bet light, and realize that the market can start correcting at any time with no warning. I am no permabear rest assured, a bullish environment is a wonderful and easy place to make money--but we need more confirmation than a good week or two.
Hope you enjoyed that news about Freddie Mac...
Well, hello all. Fun day today, hope you enjoyed that news bit from Freddie Mac---very entertaining. I wonder how they are going to explain the magnitude of these losses to their buddies in Washington. If for some crazy reason you own shares in either Fannie Mae or Freddie Mac, sell immediately---the government will backstop their obligations, but the shareholders (and the taxpayers) are going to take it in the rear whent he smoke clears. They are worth less than zero--so is Citigroup--but that is Act 2 in our little play called the "Credit Crisis".
On a lighter note, I just saw a funny video on CNBC where Paris Hilton details her own solution to solving the energy crisis----the scary thing is that her proposal sounds better than the one's proposed by Obama and McCain. Either way- while Washington finally creates proposals to solve decade old problems, ironically our dear friend Oil fell yet again extending a correction that is now more than 20% from all time highs. All commodities continued to fall in unison. Even the almighty fertilizer stocks--Agrium and Potash---have formed classic topping formations, and they are now rolling over. If you own them for some reason, you should definitely sell even thought the fundamentals are still fanatastic long term. Unfortunately as many value investors have learned the hard way this year, value and fundamentals alone do not neccessarily make good investments---the market and the industry momentum have to be going your way. Most of these legendary investors including Bill Miller, Warren Buffett, and hedge fund managers Mohnish Pabrai, Richard Pzena ,and Peter Goodwood,are down BIG this year--between -28 and -50%. I used to be a die hard value investor many years ago, and i learned the hard way how painful it can be to bicker about value and balance sheets while your shares get obliterated. Now i choose to fly with a parachute---if things don't work out i just take my losses early and move on. Im not going to pretend that I always know better than the market--because ultimately no one can. The market is never wrong---but people's opinons often are.
Anyway, to those of you who keep pestering me to talk about the indicators I use for making longer term shifts in and out of the S&P, I promise it will come soon. I plan to spill the beans from my 50+ year study on the S&P500 free of charge so stay tuned. My long term trading indicators produced a 15% rate of return trading in and out of the market vs 10% for the S&P500. The system was out of the market 40% of the time, so this does not include what you would have made shorting bear markets or investing in Treasury bills at 5%. Obviously if you just invest in mutual funds this will be a very valuable segment as you can rotate in and out and sit stress free on the sidelines while the market gets killed, and get back in when a new bull market starts.