Stocks decline after record Rise yesterday-Gold moving towards $1000

As I mentioned in my earlier post, I really don't feel that yesterdays rise was anything other than a massage upwards based on the Fed's announcement of a $200 Billion injection to improve liquidity.Today after rising at the open we worked our way back to end up with declines across the board.

The Dow Jones industrial average (INDU) lost 0.4%, the broader Standard & Poor's 500 (SPX) index lost 0.9% and the Nasdaq composite (COMP) lost 0.5%.

 

The announcement of the injection of capital from the Fed sparked a short covering rally but today we returned to concerns about what the economy is doing .The Retail Sales numbers are due out on Thursday and they will be closely watched to see what consumers are doing, if we see further declines in retails sales then it will likely spark another moving lower of the indices.

 

Oil hit an all time high above $110 a barrel before closing just below that, I can well remember the raised eyebrows when Goldman Sachs forecast $100 by 2009 in July 2007. looks like they were dead wrong and we got there a lot sooner !!

 

For me Commodities are still the place to be at least in the medium term, sure we will see pullbacks, some of them vicious but I do not see them being a bad investment over a 2-3 yr horizon.Gold was up again at $985 and I don't think it will take much for us to see $1000 in the next couple of weeks.

 

Best Wishes

 

 

Alan

 

 

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Buying SPY Puts for Some Insurance

The stock Market dropped sharply today as Bonds sold off and the existing Home Sales Numbers came out weaker than expected.At the close the Dow Jones Industrial Average (DJIA – 12,502.6) had lost 119 points, or 0.94 percent, and is now resting on its 20-day moving average. The S&P 500 Index (SPX – 1,423.9) is also on its 20-day trendline after losing more than 1.1 percent. The Nasdaq Composite (COMP – 2,434.2) dropped 1.3 percent, falling back below its 10-day and 20-day trendlines.

The Market is making me nervous at the moment, I have learned over the years that when I feel like this I should be proactive in protecting my capital and gains and taking out some insurance to protect the downside.

Now let me be clear I am not calling a top or saying that the market is going to decline from here-I think it is extremely brave (or stupid) to try to call market tops and bottoms,but I do feel that the market is behaving as if it is running a bit out of steam and it would not take much for it to roll over from here.

I cashed in a few postions today that have done well for me over the last little while, I closed out positions in the following :

Telecom Holders (NYSE TTH) 33% Gain

Madison Claymore(NYSE: MCN) 3% Gain

Vietnam Opportunities Fund ( LSE: VOF) 86% Gain

Drax Group (LSE : DRAX) 16.5% Gain

So I have lightened up on a few positions and realised some cash so I can take advantage of any opportunities that may present themselves in the next little while.

The Feb 43 QQQQ Puts that I bought a week or so ago came rocketing back today up around 80% to be back at break even. Depending on what happens tomorrrow I may roll these puts to the March contract as time decay will start to be a factor here.

I am also going to look at some "at the money" or "in the money" SPY Puts as I feel that the S&P 500 may be vulnerable to a further breakdown here as well.

It is important where we are trading for the mid to long term that we look at smoothing out the ups and downs and volatility as much as possible, if only for sanities sake.

If you cannot trade Options in your account or are not comfortable doing so, have a look at your portfolio and look for any opportunites to prune back your exposure.

You can do this by taking profits in stocks that may have run up but have been trading sideways for a while or ridding yourself of positions that have not really performed as per expectations.

There is always a danger that you may miss some further upside but my experience has taught me that missing out occasionally on some of the upside does not make up for the angst and "If only I had" regrets that taking big and swift losses brings.

As ever best wishes and Good trading

Alan

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