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Wow!
What a ride yesterday! For those of you that read me on a regular basis know
that I have been waiting for yesterday since the 1st of July.
Let’s face it, “you don’t have to be a weatherman to know
which way the wind is blowing.” The market has run up so far and so
fast that these last few days were long overdue and I said so in July. I
didn’t advise readers to take cash and hide it under their mattress but
I did advise that they lithely move in and out of positions in an effort to
make a few dollars and build up their cash position for the inevitable sell
off. In Thursday’s post I conceded that I was wrong that the S&P
would hit 30 as I had steadfastly predicted and told everyone to look to buy
slowly into the market as it had breached the 200 day moving average on the
Dow and on the S&P.
Well
I was wrong. I was a day early. Yesterday the market sold off with a
vengeance. The DOW closed down 512 points or 609 points under the 200 day
moving average at 11383. The S&P sold off 60 points or 86 points under
the 200 day moving average at 1200. The S&P VIX which had baffled me for
a month finally acted as scripted, closing at 31.63 and sold the market sold
off with a vengeance. So this now begs the question where do we go from here?
Let’s
begin with the premise that most investors believed that Congress would
extend the debt ceiling at the 11th hour and everything would
be just fine. What I believe that most investors missed however is that
everything is not fine. We are pressing the envelope and the patient is in
intensive care. The fact is that as I have been encouraging my readers to
move to the safe havens of Gold and Silver because Uncle Sam is dead broke.
Forecasting
the market by gut instinct is sheer folly because its great drawback is that
we are all human and therefore we are susceptible to human frailties. The
real money doesn’t want opinion or clairvoyance; they want cold hard
facts. There are specific criteria or prices that must be met. Using the DOW
as an example 12686 was the monthly closing resistance. Until that is broken
and held there can be no breakout possible to the upside. In the opposite direction
support lies at 11006. A monthly closing below that level focuses our
attention on 10810 and a closing below that level warns of a retest of the
2009 6440 low.
Well
panic is filling the financial streets. There are institutions so frightened
that they are actually depositing cash in the Bank of New York Mellon. So
much cash has been deposited that the bank sent out a press release yesterday
that it would charge a fee for large deposits of cash fearing that interest
rates could go negative. Amazingly, traders are trading on their concept of
how things should move. They are buying bonds and moving to cash while they
sell equities, yet buying government debt is the epicenter of all of the
problems. Sadly this is normal. In times of fear and panic human beings will
act in all too human a fashion. To use an example from “The Great
Crash of 1929” from 1932 until 1937 the DOW more than doubled as did
unemployment. The markets taught us that it was government not corporations
that were at risk.
For
now August and September look to be very volatile months. The big turning
point appears to be next December and January. The trend should begin to
change at that time. For now we are confronted by “Black Swans”
on so many fronts. If there is anything good about stock market
correction it is that it gets Congress to pay attention. Certainly it is not
because they care about the people. Rather it is because when they see their
own portfolios start dropping they start asking about QE3! Until that happens,
they couldn’t care less.
For
now it is correction time. It is not the end of the world. Indeed we may look
back on this as an opportunity to pick up some names at great valuations. I
warn all of my readers not to wade into the water too deeply because while
this is the beginning of the correction I have been writing about – it
is just the beginning. There may well be more 500 point drops ahead so if
ones buying is disciplined and carefully planned I see this as an
opportunity. In years to come, we or our children will see the DOW hit 50,000
but that comes with the caveat of continued debasement of currencies. So as I
have written and will continue to write I see Gold and Silver as the safe
ports in this storm. With the correction now in full blown mode I also see
great opportunity to short this market in select areas. As I have written,
corrections like this should not be feared but rather embraced. Be very
patient and judicious in your buys because we could go lower. Today I plan on
watching the parade march by and if there is another 500 point selloff on the
DOW I will pick my spots and buy at the end.
Have
a great Trading Day!
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