Is it Time to Buy?

Most of this year the market has been in a trading range. The S&P 500 Index is now getting very close to its lower channel support line. If the debt ceiling legislation is not passed by monday the market will likely reach or punch through support. If a debt deal is agreed upon, we should get a nice bounce in the market.

The chart of the S&P 500 below is called a candlestick chart. It is called a candlestick chart because each day's trading is represented by a red or black bar that resembles a candlestick with a wick sometimes protruding from both the top and the bottom. The shape and location of these candlesticks can help us gain insight as to how the trading day, week or year has evolved. I like to use charts in my market commentary because they allow me to assess the market's condition in a simple and visual way.

So what is this chart telling us? Well, aside from telling us that the market is in a trading range, it also tells us we are near a potential buy point. If you want to make money in a trading range market environment, you need to buy at or near support and sell at or near resistance (the top channel line).

(Click on chart for easier viewing)

The red candlestick on the right-most represents yesterday's trading action. Notice that it has a long lower wick. This tells us that large players stepped in to buy, pushing the market up from its low of the day. This is a positive. It means that to some large buyers the price has reached a point of value.

If we buy near support we can define our risk and potential return by placing a stop just below support. If support holds our target is the top of the trading range.

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.

Buying the Dip

I have gone 100% long in the GWM Long/Short Folio.

I also added an additional 25% equity position in the GWM Core Equity Folio.

The size of the positions taken and the risk assumed is dependent upon your chosen GWM Model Portfolio.

The market has declined for 5 or 6 days now, creating a buying opportunity. We still might get a sell-off early next week if our elected officials don't come to a resolution over the weekend on the debt ceiling problem. If they don't get a deal done by Monday or Tuesday the market will force them to get it done or face more ridicule.

My job is to manage risk, not to avoid risk. New protective stop loss levels have been calculated and set in place.

Because we have made it through this correction relatively undamaged we are better prepared to spend a little account capital and mental capital to take advantage of the situation.

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 07 28 2011

Investor's Business Daily Trend Change:

Market in correction

Our intermediate term Market Direction Model (MDM) remains positive (Long).

We were stopped out of a number of positions on Wednesday. At the moment headline risk remains extremely high. We will maintain a cautious stance until we get some resolution on the political front.

Long/Short Folio: No short signal was issued as of yet.

In our Long/Short Folio our gold miners ETF (GDX) was stopped out Thursday morning. We did add back a 1/2 position in of our small cap ETF (IWM) after being stopped out yesterday.

Recent changes I have made to the holdings in the Flexible Income Folio have been a positive. We remain Long GLD (gold ETF) in the Inflation Hedges Folio.

We are no strangers to market turmoil. We have handled tough situations in the past and will handle the situation we are now confronted with. The key is to preserve both account capital and mental capital so that we are able to seize opportunities as they arise.

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 07 27 2011

The debt-ceiling standoff is going nowhere. Investors ran out of patience and headed for the exits.

Multiple equity positions were sold after stops were hit. As a pre-emptive measure I did exit our NASDAQ 100 position (QQQ) this morning.

If we get more downside tomorrow I will further reduce risk assets. After today, our equity exposure is relatively small.

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.

Gold - Still Going Higher

Gold has been going up. What will happen when Congress resolves the debt ceiling issue? I suspect that it may come down some, but not by much. It will depend on the extent that austerity measures are included; I am not expecting a lot of meaningful cuts.

My sentiment is mere conjecture. So let's look at the gold chart. I do have a technical way of valuing gold.

My method:

Since gold can be viewed as a currency I plot the ratio between gold and the US Dollar in the middle panel of the chart. In the upper panel I chart the relative strength of the ratio. When we get a reading of around 80 on the upper panel gold is considered overbought; this has proven to be a good time to sell in the past. We are not there yet. Based on the chart we will continue to hold gold.

I might add and will address in the future that Silver and Gold Miner are a very different issues that require different evaluation methods.

(Click on chart for easier viewing)

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 07 26 2011

THE US GOVERNMENT IS NOT GOING TO DEFAULT ON DEBT OBLIGATIONS!

It only takes a couple hundred billion to service the debt obligations of the US. We have plenty of money to cover interest payments on treasuries as well as social security payments and most other entitlements.

The real risk is that the economy would be slowed down by the curtailment of non-essential spending.

There is no doubt that the bickering in Washington is causing the high volatility in the market. I have carefully repositioned all model portfolios in an effort to help us weather this volatility; so far so good.

If an agreement to lift the debt ceiling is not made by Aug. 5th volatility very well could increase. Bear in mind that one man's volatility is another man's opportunity. As the deadline draws nearer I may raise some more cash. I would be a buyer on a dip.

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.

First Follower: Leadership Lessons from a Shirtless Dancing Guy

The crowd behavior exhibited in the attached video parallels investor behavior as new bullish trends emerge. The investment management tools I now have at my disposal will help us to be early followers. Click on the text link below to view this great lesson in human behavior.


http://www.gerritzwealthmanagement.com/first-follower-leadership-lessons-from-dancing-guy/