The Bulls Fight Back

There was a 600 plus point intra-day swing in the Dow Jones Industrial Average today. An ugly battle was waged between the bulls and bears. The bulls ended up winning the skirmish. If they continue to dominate in the days ahead, today will be considered a reversal day. If we then develop a series of higher highs and higher lows going forward investors will believe that the longer term uptrend has resumed and quickly chase the market higher. Investor are more likely to buy in an uptrend. I was encouraged by today’s action, but follow through is required for me to gain enough confidence to put money back to work in stocks. There is an old wall street saying that says: Don’t try to catch a falling knife.

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CASH IS KING

The Stock Market is in a state of chaos. I feel it would be non-productive to risk both account capital and psychological capital to either try to catch the initial bounces,as  they will more than likely be faded, or to try pick a bottom.  Playing with fire is a fool's game.

Based on how the big picture develops this coming week, I may buy back some gold. I will also review our bond holdings, most likely adding to positions on any weakness brought on by the US Debt downgrade.

I have decided it is best to go into shut-down mode for the moment.  I will be blogging much less, if at all, for the time being. I'll let you know when we get some clarity again.

Now is the time to just sit back, relax and ignore the financial turmoil.

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Standard & Poor’s Downgrades U.S. Credit Rating

The U.S. credit rating was downgraded today. Standard & Poor's made the announcement late Friday that it has cut the US long-term rating from triple-A to AA+.

Based on a Wells Fargo analysis of a possible debt downgrade I don't think much more than a brief and small pullback in bond prices will occur.

Even before the downgrade was announced the bond market was under a bit of pressure today. As a result we gave back some of the gains made yesterday.

Technicals:

 
A credit rating of AA + still is rated as 0% risk according to the Basel II Accord, 2011

Below is a link to a July 28, 2011 Wells Fargo report titled "Understanding the Consequences of a U.S. Debt Downgrade."

https://www.wealthmanagementinsights.com/userdocs/pubs/QMU_Understanding_the_Consequences_of_US_Debt_Downgrade_7_28_11_IMT_FINAL_TAGGED.pdf

Running with the Bears

Ride the Bull and Avoid the Bear

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Silver Stopped Out

We got stopped out of silver as a quick reversal sent prices lower.

I sold gold (gld) as a pre-emptive move. Reason for selling:

1. Regulators are threatening to raise margin requirement.
2. Gold is vulnerable at these levels in light of the steep market sell off today.
3. Price declining.
4. We can always buy it back (never fall in love with an investment.)
5. Gold my be sold off as liquidity is raised to meet margin calls.

Gold timing chart

Gold in overbought region - good time to take profits given the fact that the Gold/US Dollar ratio is rising.

The Dow was down more than 500 points on the day.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

Golden Years Out-Performance YTD

You may have been surprised that the GWM Model Portfolios actually made money the last couple days while the market in general tanked. The majority of our retired investors have chosen the Golden Years Model Portfolio because they would rather not to have to worry about their investments in these turbulent times.

Below is a chart comparing the year-to-date performance of the Golden Years Model Portfolio to the S&P 500. Notice that yesterday, while the S&P lost over 2%, Golden Years gained about 1/2%.

For the year the S&P 500 Index is up less than 1% - Golden Years is up 2.70% YTD. We have accomplished this return with a mere fraction of the volatility of the market in general.

(Click on chart for easier viewing)

The GWM Market Direction Model (MDM) is now in cash. The current oversold condition of the market would suggest a bounce coming soon. We will not attempt to play that potential bounce at this time. The trading range lower-support-line has been breached to the downside on heavy volume. Moreover, the S&P is now below the 200 day moving average (DMA), a further negative. This may have invalidated the trading range. Because the MDM is in cash our Reversion-to-the-Mean strategy mentioned in The Gerritz Letter is tabled for the moment.

* All Model Portfolios have no exposure to equities at this time, with the exception of the Permanent Porfolio fund (PRPFX , a fund that holds gold, silver, treasuries and some growth stocks.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

Market Comment 08 02 2011

On Monday the market gapped higher based on an expectation that a resolution to the US debt ceiling crisis  was at hand. The market began to fade that gap from the start of trading. About an hour later we got the news that the ISM numbers (a measure of industry productivity) were far worse that expected. The market then not only gave back all the gains but went on to loose another 60 S&P 500 points.

The fireworks in Congress were really a smoke-screen hiding the real problem for the market; it's the economy stupid. The ISM numbers were revised down to just above 50; a reading below 50 represents a contraction. Can you say double dip?

So today as they pass the debt ceiling bill the market falls by over 250 Dow points. The market has now been down for 8 days in a row. This has not happened since the 1970's.

The next critical data point is the employment report due out on Friday. The market seems to be discounting a bad number here as well.

The small equity positions we actually held were stopped out in the last couple days. (XOP, XES, RWX, BJK, IWM, RSX) See Smart Stops table below:

(Click on chart for easier viewing)

 

Strong performance in our new bond holdings, Swiss Francs ETF (FXF), and gold ETF (GLD) not only protected us, but helped deliver positive returns today.

I will be looking to the GMW Market Direction Model (MDM) for a potential signal change. We have been getting close to a medium-term sell or short signal.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.