The market reversed as we expected last week from extremely oversold levels. The rally attempt in still in play technically, but I do not feel comfortable investing in this market anytime soon. We are currently 90% cash. Our one open position, BYI, is showing signs of weakness but has not broken the 50day ema yet. Since we bought the stock, it has returned around 45% while the S&P 500 has lost around 15% in the same time frame.
The market feels like it's on Prozac right now. It's very easy to get caught up in the whipsaws every day and think we are putting in a bottom, I am not convinced yet and highly recommend staying as much in cash as possible. The big picture is that we have been in a bull market for 5 years roughly, and it has worn out it's welcome. Not easy for a market to advance for that long of a period.
Currently over 50% of the world's stock markets are in bear market territory, a sell off of 20% from the 52 week highs. At home, the S&P500 is down 17% from October, nearing bear market territory. Caution is warranted and cash is king in this market. Most money is made when a bear market is coming to an end and no one wants to get in, not when a bull market is old and everyone wants to get in. Be careful.
On a positive note. Many legendary value investors are buying into financial stocks at this time, so are insiders in large quantity. Financial stocks typically lead the market both up and down. The Fed is on our side and has shown they are willing to act aggressively. "Don't fight the Fed." The VIX is signaling some type of bottom here which is historically good.
Bottom line, all these things are longer term signs of strength. Shorter term is not a market I want to invest in. Let's be patient and wait for the signs of a stronger market. Remember, cash is king right now. When the market turns bullish, there will be plenty of time to invest.
God Bless
Saturday, January 26, 2008
Volatile Market
Saturday, January 19, 2008
Worse start in history for S&P
The S&P 500 is off to its worse start in its entire history. Now is no time to be a hero and bottom-fish for values here. Sure, the market will bounce here very soon as it is incredibly oversold. I would anticipate this bounce to be very quick and powerful, but please don't be fooled. The bounce will more than likely fail.
Our goal here is to stay out of trouble in a very dangerous market. Wait until the market tells us it's safe to buy stocks again. For now, the best thing you can do is sit on your hands and don't place any trades.
We have been cautious on the market since 11/05/2007 and not fully invested since that time. Currently we are sitting on one position (BYI) held since 9/20/2007, currently up 46% and remaining resilient in this incredible market. We will sell at the first sign of weakness however.
Pay close attention to the top of the blog. When the question, "Is it safe to buy stocks" in answered "Yes", we are entering back into the market and will post our free stock picks.
God Bless