Friday, October 30, 2009

10 30 09 Market Comment

 Yesterday the market reversed its recent downtrend and was up sharply. The trough formed by that advance is now important support. As long as the major indexes hold above that level, the decline from the mid-September highs will be properly viewed as just another typical bull market correction. If yesterday’s trough is decisively penetrated however, the odds favor a much deeper decline. It is probably going to take a few days for the market to give us enough information on which to make a reasonable guess about the near-term direction of stock prices.

 Many junk bond funds were flat or down – even though the stock market was broadly up. That is a normal delay function that we frequently see expressed in the junk bond market. The mutual funds got hit with redemptions on Wednesday and had to sell bonds yesterday. Hopefully, they were able to get all the selling to cover redemptions completed yesterday. If so, junk bond funds may resume their uptrend and move higher today.

Thursday, October 29, 2009

09 29 09 Market Comment

The stock market accelerated its downside move yesterday and is now deeply oversold. Such oversold conditions usually trigger some type of a bounce – and we’re getting a big bounce today. The nature of this bounce will give us some clues about the market environment, but it is what follows that bounce that will really be important.

Downtrends are made up of strong down-legs interrupted by weaker up-legs. When the next up-leg in the stock market develops, it will establish a trough that will mark the bottom of a strong down-leg. It is highly unlikely that the first up-leg following that trough will erase all the drawdown of the current down-leg. That means we will likely end up with a weaker up-leg following the current strong down-leg. What happens after that will determine if the current correction morphs into a significant downtrend.

The trough formed by the next up-leg is the key. That will be very important support. If it is subsequently penetrated in a decisive manner, we can logically conclude that the stock market has completed a significant topping pattern and established a downtrend. If the stock market holds above that trough, we will have to watch and see if a pattern of stronger up-legs interrupted by weaker down-legs (an uptrend) reemerges.

Most junk bond funds declined modestly yesterday. That is not surprising since junk bond funds typically follow the major trend of the stock market, but with a lag and with little of the day-to-day volatility. These funds may move lower again today – even if the stock market rallies. That is the lagged effect that helps make these funds so easy to time. We shouldn't worry about a small decline. I have moving average stops in place to protect us from the downside. With junk bond funds the day-to-day volatility in the stock market can be ignored in the short term. If stocks have topped and entered a significant downtrend, we may start to hit some sell stops in junk bond mutual funds in a week or two. If the correction in stocks is about over, junk bond mutual funds will likely turn higher following a modest decline.

We can’t control what the market does, but we can control how we react to what the market does. Being invested in junk bond and similar mutual funds, there is nothing to do at this point except to make sure you have stops set.

Tuesday, October 27, 2009

Las Vegas meeting with Michael Price

On Oct 17th Christopher and I spent a day with Michael Price and about 70 other investors and advisors. It was a great opportunity to learn from the master. As you know Michael is someone I admire very much. He is most generous when it comes to sharing his insights as well as his superb money management techniques and strategies. He personally manages over $200,000,000.  He works out of his house in Florida and has just two employees; his daughter and son-in -law.

Steve Gerritz, Michael Price, Chris Gerritz

The meeting was held at the Venetian on the Vegas strip. It is a beautiful hotel. Chris said  "I have been to Venice and parts of this hotel looks just like the real thing."

In the upcoming November issue of The Gerritz Letter, I will  share the highlights of my meeting with Michael.

Monday, October 26, 2009

10 26 09 Market Comment

The market appears to have entered a period of consolidation following a strong uptrend that peaked Oct. 15th. This correction does not look any different from the others that have occurred since the market bottomed in March. Moreover, our more conservative investors are invested in Bond/Income funds, most of which remain in a very low volatility uptrend.

More aggressive clients have a relatively small exposure to stock funds at this point and should not be overly concerned with what appears to be a garden variety correction. If it turns out to be worse than expected, we are protected by our trailing stop strategy. Sector fund trailing stops set at 12% and diversified stock fund trailing stops set at 8%.

Wednesday, October 21, 2009

10 21 09 Market Comment

The stock market is bouncing back after a bit of sideways action the last few days. There is not much threat of the party coming to an end until the Fed begins withdrawing the excess liquidity they injected earlier this year. Of course a correction could develop for whatever reason, but it would probably be short lived.

Our High Yield funds continue their low volatility uptrend. We continue to deploy our 50 day moving average stop loss risk management strategy.

For some more aggressive accounts I have added a small position in an Australian and Brazilian ETF; each of these amount to just 5% of account net worth. Moving average stops do not work well with stock funds or more volatile sectors like these. For diversified stock funds we use a trailing stop of 8% and for sector specific ETFs we use a 12% trailing stop. We do not want to have the position sold just to see it bounce right back.

*  A trailing stop continuously moves the sell stop price up as the price of the security goes up. If the price moves down from its high by the predetermined percentage, it triggers the sale of the position. This allows the position to run on the upside while limiting the downside.

Thursday, October 15, 2009

10 15 09 Market Comment

The bull market resumed yesterday as the averages blew through short term resistance. Google reported better than expected earning after the bell today. For now the uptrend is intact. Muni bonds and junk bonds are moving in opposite directions. Junk up and muni's down. We will have to see which sector will lead the other.

Tomorrow Chris and I fly to Vegas. I might make my first attempt to tweet on twitter.

Wednesday, October 14, 2009

10 14 09 Market Comment

The Dow Jones Industrial Average closes above 10,000 for the first time since Oct 3, 2008.

My son, Christopher Gerritz, has passed his Series 65 Securities Exam and is now officially a Registered Investment Advisor Salesperson. Congratulations Chris!

Christopher and I will be going to the Venetian in Las Vegas to meet with Michael Price and a group of about 70 investors and advisors. This will be an all day meeting with some of the best minds in the business. In next month's newsletter I will definitely be discussing what transpires. What happens in Vegas doesn’t necessarily have to stay in Vegas.

Tuesday, October 13, 2009

10 13 09 Market Comment

While we are still off the mid-September highs, the market has been moving back up for last 6 straight days. Futures indicate a slightly higher open today. Also, Intel and Johnson and Johnson report earnings today; we will have to see what the impact will be.

Junk bonds continue their low volatility uptrend.  Muni bonds have been giving back a little of their previous months gain; I am looking for a possible buying opportunity.

We continue to use 50 day moving average stops to protect our positions.

Thursday, October 8, 2009

10 08 09 Market Comment

Stock suffered a relatively minor correction in mid-September. The market is now once again in an uptrend. If this trend persists, the high yield bond funds we own should move up along with the stock market. Bond funds remain in a low volatility uptrend.

The All Ordinaries Index (Austrailia's equivalent of the Dow Jones Industrial Average) is surging. I may make a small allocation in an Austrailian fund or etf shortly.

Tuesday, October 6, 2009

10 06 09 Market Comment

The Reserve Bank of Australia raised its benchmark interest rate to 3.25 percent, Tuesday, up from three percent. The Reserve Governors say "with Australia's economic growth on track and the risk of a serious contraction past, it is time to gradually raise rates from their lowest level in 49 years."

Australia's economy weakened, but did not fall into recession in the past year, because of strong demand from China and other countries for its commodities, such as iron and coal.

Australia is the first developed country to raise interest rates. The news is boosting equity markets and depressing high quality corporate bonds.