Gold

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The chart above shows the past 4 years of GLD, which tracks the price of Gold. We would never short a stock trading above an uptrending moving average, but we would lighten up on GLD at this point, and continue to lighten up on it if it advances from this point. We're not saying it can't go higher, but that if it does, it will inevitably return to its current price sometime in the next few months. In other words, it isn't about to get away from any potential buyers at this point. Don't chase it. Although very bullish, this chart looks ripe for a 7%-8% correction (at least to the low 100's).

The Dow

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Is there anyone still reading this blog? We lost interest in the market for a while, but a recent glance at our account piqued our interest again. We're actually in the black since we started the blog in mid July. Barely in the black, but heck, flat is the new up.

Every time the market nears the top of the channel, we get tempted to drop DDM and SSO, but it never spikes high enough to tempt us that much. If we had a quick spike to the area of the red line, we'd sell it all and just wait. We still think that despite all of this recent strength, the market is just finding the top of a new sideways channel in which it will live for the next two years or so.

Before we have any truly sustained (multiyear) bull market, we need new innovation, which doesn't exist right now. When "the next big thing" comes along, this blog will be all over it. Finding the next leaders is what we do best. Well, that, and pointing out when they die.

But for now, the best we can do is stay long with a third of our stock portfolio and try to play the channel with some portion of those long holdings, all the while avoiding overexposure. At some point, the market will hit the top of its new sideways channel and then feel around for a bottom. Maybe sideways from 8,000 to 10,500 for two years? How does that sound? Your guess is as good as ours. We'd like to hear what others think the near term future holds.

More important than guessing the market's next direction is now trying to find that "next big thing." You won't find it any earlier than anyone else. You just have to understand it sooner.

We're most interested in any help we can get in spotting the next major phenomenon. Let's all work together and make the next bull work for us!

Bernie gets 150 years

What a light sentence, just a year for every 27 million stolen... from charities no less.
Bernie should have gotten a year for each $20,000 stolen, much like "blue collar" criminals would have gotten. That would put Bernie behind bars for the next 200,000 years. But as a "white collar" criminal, Bernie gets a slap on the wrist like his other Wall Street peers.
Of course he'll die in jail, so it doesn't really matter what his sentence is from that standpoint, but for those of us doing the math, white collar crime is looking like a good way to make a living.
Perhaps the criminal system will redeem itself somewhat and lock up everyone who was in on the scheme, including his wife and his sons.
Nonetheless, Bernie's sentence restores some of the faith that we all lost in Wall Street over the past few years. Maybe just 1% of it, but it's a start.

Selling DDM and SSO

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This may be a bold move, but Tuesday, June 15th, we're going to sell just about everything. If you look at the chart that we posted on April 8th, we extended the lines out in such a way that the Dow would reach the 200dma sometime in June at a price of 8400 to 8700.

That's pretty much was has happened. But the eerieness of the predictive nature of that line drawing is not why we're selling.

We're selling because we're in a bear market, trending lower below a downtrending moving average and we just rallied back to the resistance line. We're by no means calling for the kind of plunge that we drew on that chart posted on April 8th. This is not meant to be an apocalyptic post calling for the end of the financial markets. That ship has sailed. We're not saying that the market is about to crash, but that we feel we've gotten to a point where the risk outweighs the reward. People have become complacent, and the fundamentals do not support complacency.

Sure the market could continue its run to 9500. But if it does, it's coming right back. So where's the gain? It's extended to a point now that a further rally would be excessive. Not impossible, just excessive.

Economists are calling for growth by the end of the year. We feel they are being too optimistic and setting us all up for disappointment. Gas prices are on the rise again, talk of higher interest rates has curbed spending, and the job market has yet to improve in a significant way. So where have we gotten since hitting bottom in February? Did we deserve the last 2,000 points? We happen to think we did, as the selloff was overdone. We just don't think we deserve another 1,000 points. Or even another 500 for that matter.

People are treating this market as if we're setting up for the next bull. We're nowhere near the next bull market. A bull market is not just an uptick in the stock charts. It's a whole new era in innovation, creativity, technology. When Al Gore invented the internet we had a bull market on our hands. This is NOT a bull market.

We're not suggesting anyone should follow us in selling everything. We just decided that it's time we start making bolder moves with our portfolios, and letting our gut have greater influence.

We continue to believe in our earlier forecast that the market will remain rangebound between 7000 and 9000 for the remainder of the year, and only slightly improved (7500 to 9500) throughout 2010.

So here we find ourselves at Dow 8600 weighing 400 points of upside against 1600 points of downside with the tune "you gotta know when to hold 'em, know when fold 'em, know when to walk away and know when to run" going through our heads. Thanks Kenny.

Sorry for not being more active blog authors. We do read the comments that everyone writes, but time constraints keep us from posting more often. There's also no need, as one post pointed out, to keep reminding everyone on a daily basis that the market is rangebound.

After selling tomorrow, we will likely post more often, as we'll be looking to get back in soon enough. Good luck!

200 DMA

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We just updated our performance for the first time in a while, and after one year on this blog, we are down 6.8%. The Dow is down 30.1% over the same time period. Not a great year for us, but we did manage to not lose big, and that's what 2008 was all about.

As for the market, we were hoping for Dow 9,000 as an opportunity to sell some shares, but we're hitting a major hurdle right now. We've run into the all-important 200dma. The 200dma is universally used to distinguish between bull and bear markets. It's the dividing line, so to speak. Technically, this would not turn into a bull market until we're trading above the 200dma and the 200dma is moving up as well. This takes time. For now, though, a significant break of the line would be a major milestone for technicians, and give hope to all that the market has finished its slide.

If we were more heavily invested at this point, we'd be lightening up on some of those shares right in here. However, considering we're only about 1/3rd invested, we're just going to wait and see. If the market does get rejected at the line and resume its fall, we'll just be adding to our position all the way down. It's hard to believe that we could possibly launch any kind of sustained bull market given there's no new industry or invention driving it. All we've really done over the past couple months is make up for a severe over-correction in the market. Hardly a bull. If we had to guess, we would vote that the market drops from this point. However, Government Sachs may have a different idea for the near term future of your 401k that we're not privvy to.

Looking Ahead

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We've been talking to a lot of Wall Streeters about the near term future of the stock market, and telling them about the speculative activity brewing in the high end real estate market. Most of them are skeptical that we're out of the woods, saying that there are still a LOT of problems out there. Maybe we're being too optimistic, maybe not. Regardless, they all do agree that we've hit a bottom. They don't believe we're going lower, but are at the same time not willing to bet that we go much higher for a long time. The concensus of those we've talked to would result in a chart that looks much like the one posted above. Stage 1, if you have to give it a label. We're told that while the market should not plunge from here, it will not be a "V" bottom either. A long basing period that lasts a year or more is what many think is in store for us.

We're committed to doing very heavy buying anywhere in the lower part of the channel drawn on the chart, and selling near its top. There's little risk selling at Dow 9,000 given that the economy is unlikely to rebound without a long struggle. There's also little risk buying the indexes at or near Dow 7,000, or so we're told, as analyst expectations have already factored in armageddon. This guess is as good as anyone's, and we'd appreciate any commentary on why we should rethink this.

SPY

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The chart above shows the S&P500 index (SPY) as of the close Friday. It broke and closed above both its 75dma and its 100dma. It's truly at an inflection point because the break is not yet decisive. If the market sells off from here, this will just look like another rejection at the 75dma like all the rest, despite exceeding it by a bit. It's uncanny how precisely it turned around the last 4 times when it reached the 75dma.

We believe that the market will move higher from here, but it all depends on the next session or two. If we have another big up day, then the market will have changed sentiment in a big way. In that case, we could make a run for the 200dma at Dow 9400, S&P 1000. Of course if we did actually get to the 200dma, it would be a little lower by then. The 200dma is the dividing line between bull and bear market. If we did get that far, we would have a very tough time breaking it. We would probably be rejected at that line 3 or 4 times.

We continue to be convinced that the market has bottomed and that the economy is showing signs of life that will hit Main Street in 9 to 12 months. This does not rule out a drop back to Dow 6500-7000, but it would be a gift. Our prediction for the long term is that the market will go sideways between 7000 and 9000 as it consolidates these recent great losses and puts in a solid base from which to launch the next bull market. This consolidation could take anywhere from 1 to 3 years. We believe that the 10 - 20 year consolidations of the past are not applicable today. Everything happens in a very compressed time frame today, although the basic principles haven't changed. We'd be very suprised if the next great, sustained bull market begins any later than 3 years from now.