Many were surprised at this week's market action. I know I was! I had predicted a market pullback last week going into this one and had also said mid week that the range of the Dow and S&P 500 has gotten much tighter and I did not thing we were going to go to higher than 8,500. This tightened this new range on the Dow from 7,500 to 8,500. I also said we had come to almost 8,200 and to me it was riskier to stay bullish then it was to believe we should go down from here. So where did we end up now that we have the advantage of hindsight?
First ask yourself this question. Did the market go up steadily this week? Don't look it up just think how you felt about the week. Ok, here's how it ended. The Dow was up only 48 points for the entire week, closing at 8,131 compared to a week ago Friday when it closed at 8,083. But didn't it "feel" like it was going up all week? How could it move up so slowly to only a 48 point gain for the week? To me it was a very controlled market. By controlled I mean the big Institutions controlled the market action this week very tightly. Why, you wonder? Because everyone who could fund and IRA or Retirement account did so, and the inflows, although less than other year's funding, because of the more unemployed, still represented new money. They did not want to scare you just yet as they want this new money to be invested into the market so they can go short and take it without causing much more harm to the overall market. They just want your money.
What was the play in my mind this week. It was raising cash by selling and/or buying ETF Ultra Short TZA or SDS or any of those instruments which are Short the market. From here ahead, I don't see a precipitous drop back down to the 6,440 low on the Dow and corresponding other indexes like the S&P 500 or Russell 2000. But I do see us meandering lower now that the psychology seems to have changed around to this recession is going to end and things are looking better or there is a "glimmer of hope" out there. That means you can buy these ETF's near their lows now and watch them rise as the market pulls back.
I purchased the ETF ULtra Short, TZA, this week several times building a very decent position with the shares. My last purchase was at $31.97, which is very near the new low for the ETF of $31.66/share yesterday. I expect to make at least $15-$20/share on this ETF before long. Remember back in the beginning of March, this ETF was at a high of about $112 and at the end of November was above $150/share. So there is plenty of opportunity here to make some very high profits. The risk is that the market is now going to continue to climb back up to 9,000 and things are going to be much better in the economy. Either way it goes, we win in a sense, don't we.
You will notice there are 2 charts I posted this week. One is a chart of the Put to Call ratio (if you click on it it will enlarge and then go back a page to come back here). You will notice that in my view there are new Buy and Sell levels to consider in using the Put to Call ratio as a tool. Any movement outside the last set of red bands signal either a Buy or Sell. If it drops low, Sell and if it goes above the upper red band Buy. You can see there has been a shift down on November 19th and 20th, the last clear buy signal at 1.40 and 1.31 respectively. This was when the Dow hit 7,500 and then went back up to over 9,000 the first week in January. There was a Sell signal on February 9th when the Put to Call ratio hit a low of 0.67, which began the descent of the Dow from about 8,000 to the low of 6,440 culminating on March 6th and 7th. You will notice the signals from the Put to Call ratio come a day or two ahead of the market move.
I also have said to watch Gold prices as a tell of market direction. I had expected the price to go back up over $900/ounce this week and stay there but it didn't, as the market did rise instead of drop. As you can see from the other chart both Gold and Silver dropped in price this week. Both metals are used not only as a currency play but is used in manufacturing. If you look at how both Platinum and Palladium acted this past week and over this 3 month period for each of these charts, the prices have steadily risen. Something must correct here. Either Platinum and Palladium are going to have a significant pullback, which I doubt, or Gold and Silver prices are going to start to reverse course and increase again. I think that is a more likely outcome given we have set in place prices of all commodities to rise as inflation rises due to the stimulus efforts of countries around the world. Inflation is the major concern of world leaders going forward.
I realize this is a much longer post than usual about the market, but I felt it was necessary to get people to be grounded again in reality. Things are still very bad. The unemployment rate will get worse. Foreclosures will rise both in Residential and now Commercial Real Estate, not only because of the increase in the ranks of the unemployed, but also because more loans will be re written with higher interest rates than many had during the Sub-prime lending years. Those mortgages are set to move to higher interest rates throughout the remainder of this year and next year, compounding the present housing problems We are far from being over this problem. Invest with an eye to taking profits when available. The mantra should be preserve Capital for the next year. On a final thought, today's San Francisco headline is that the Unemployment rate for California for March is now 11.2%, the highest in 68 years.
I also invite you to take the mini poll on the right margin if you have not done so this month. I have data back to December from this poll and I am trying to see any trends in people's view of the recession. Thanks for the visit and come back when you can. You can also subscribe to this site by clicking on the Orange RSS logo. You will be notified via email every time I post anything new. Thanks!
Labels: Commercial Real Estate, Dow, ETF's, foreclosures, Gold, higher interest rates, IRA's, market outlook, Palladium, Platinum, Put To Call ratio, Silver, SP500, TZA, unemployed