March 24, 2011

THE MARKET IS UP and MOVING............ Per my Monday, 3/14 update, I did not feel the market was headed for a bear correction. In my 3/18 update I felt the decline was over and we were headed for prices higher than the February highs, but I thought it would be limited on the upside. That thinking has changed because of the internals (advances /declines, highs and lows and volume) and price pattern readings.

I was able to sell 44% of my short positions last week at a profit. The reason for still holding short positions is that the market is still in a topping process. The readings may very well change quickly and the move down will be a bear market move. I bought stocks and ETF-UWM,( double inverse small cap) to hedge my remaining short positions.

I tried to come up with past patterns that suggested the market (Value Line(G) index) would top out at the February highs, but that does not appear to be the case. If it goes beyond February higHs, my big question: "IS IT A RUNAWAY MOVE OR SOMEWHAT LIMITED?" The move we have had since September has been very intense as measured by my market internals and has occured 8 other times. Since 1979 we have,1986,1989,1992,1993,1996,1997,2006,2007 and, of course, now number 9.

The blue chips are leading the way but that may change as the market makes its way higher. As long as price and internals are giving positive readings and not breaking down we will "run with the bulls".

On February 24th we noted bonds would have a multi-week rally but it would lose steam so we could buy bonds at lower prices. Bond prices may have already topped out on 3/16.

ETF-USO (oil) was bought 2/28 and we still hold that position.

March 18, 2011

DID THE MARKET OVER DO IT WEDNESDAY??? . . . . The market was down hard Wednesday afternoon. Harder than we were looking for on this decline. Our maximum number was 372.25 and it closed (Value Line Index) at 368.64. It was a news driven,emotional market. I believe a rally and higher prices are in our near future. I was selling more shorts and have reduced my short positions by 44%. But I'm not willing to go down more than 50%.

The Value Line Index fell to its 100 day M.A. Wednesday. In 1979 when the 3 Mile Island accident happened it fell to its 80 day M.A.. With the Kobe problem in 1995, the U.S.market had no real negative move. Russia's Chernobyl disaster starting in April 1986 had little effect on the U.S. market. The market did top out in July and Value Line worked its way down to its 500 day M.A. The point being that after a brief pullback I expect a rally, and in that rally an end to its topping process. Then a move down to the Value Line 300-500 M.A. BUT, at this point in time, if the market keeps falling , and goes back to Value Line April 2010 highs (355-360), it would change my numbers and outlook.

I'm watching my internals ( advance and declines on NYSE,Highs, lows and volume) as this rally or decline progresses. The price pattern will move me in the right direction to keep me in the proper trend.

March 14, 2011

SORRY, BEARS...... Time is not right yet for a nasty correction. My price pattern indicators are telling the story and they are pointing to more price action on the upside. They suggest a move at a minimum toward the Feburary highs and at least some of the major indexes will go to new highs. I say that as a bear myself. I have recommended building (not jumping in with both feet) short positions with inverse bear funds since mid December and as the market makes new 52 week highs, add to the positions. I became more aggressive in January and February.

This week I sold 20% of the short postions and started buying stocks. The reasoning behind it is the following: I expect a rally of 1 to 5 weeks and plan to buy the inverse ETF's back at lower prices. It should not be a roaring move with the Value Line Index (G) moving to marginal new 52 week highs. Some of the stocks I follow have put out short term buy signals and I will keep a short leash on them. The down side action we have seen in recent weeks and, in particular this past week, is not pointing to a bear move.

The move off the 21 day moving average of the Value Line (G) index from this kind of top is not conducive to a bearish move. Looking at 32 plus years of market prices,both my short term and long term price indicators are saying we will have to wait for another day.

Strong market tops take a long time to form and we are still in that process. BUT, we are near the end of the process. There is enough bad news out there that the coming rally may get short circuited and that is why I am reluctant to sell more of my short positions. I am still holding 80% of them. When the market does fall apart into a bad correction or a mini bear market, the market, in my opinon, will move down to the 300 to 500 day moving average before it finds its footing.

March 7, 2011 Before the Market Opens

Still Stuck in Neutral. It remains to be seen where we are headed. The Indexes are stuck between the 2/18 high point and the 2/23 low point. Price patterns suggest the following: A move to the 2/18 highs and maybe somewhat higher would give us the topping pattern we favor. The downside target for the Russel 2000 would be the 500 M.A. which is is about -25% from the 2/18 top with a potential of moving down -34% from the 2/18 top.

On the other hand if we are to continue to move down from the 2/23 low the down side is much less. The downside target would be-11% to -14% (in the area of the April high). Which ever way it goes, the move up from those areas should be substantial and the bull market would resume. The move to the old highs first and then the big correction (mini bear) seems the most likely outcome. The consensus is looking for -5% so it should come as a big surprise when the bigger numbers are hit. The senero should be clear by the next up date.

February 24, 2011

IS THIS THE REAL THING OR JUST A HEADFAKE..... The market sure has been down BUT not in a correction mode yet. I received short term sell signals on the Value Line Index (G) Tuesday and the market is making actions like it wants to correct BUT I am still suspicious that this is not the real thing.

KEEP IN MIND your short positions OR the selling of stock or mutual funds should have taken place while we were hitting new 52 week highs. Your positions should have been estabished then, not now. The reason I am emphasizing that is the following: If the market does continue into a correction from here the price patterns suggest that a 9-11% correction will take place, not the 20-30% down move I was looking for.

We should drop below the April high of the Value Line (G) Index. That may change if we go to new yearly highs from here and the price pattern changes.

Additional short positions will be added if new highs are in our future from here. At this point in the down move as long as the Value Line Index stays below its 21 day M.A.(E) our short position will stay good, and once below April's high point we will re-assess.

February 13, 2011

Stocks: A topping process is still playing out and the market (Value Line) has picked up strength in the last week. More short positions were added at high points using a dollar averaging strategy. Our price indicators are weakening but still have not rolled over, but price patterns are indicating a topping pattern.

Bonds: Bond prices topped out in August and then entered a bear market in November. Price patterns are indicating that we are in a bear market rally mode but another down turn is coming in Bond prices. We are following ETF, TLT, a long term bond ETF. The area of $87.50 is our target and it closed Friday at $89.46. Another idea we are following is Mutual Fund PRCIX (T.Rowe Price Income Fund). It has a solid record dating back to the mid 1970's.The last 10 years it has returned 6.26% per year (total return). The idea is to add positions from time to time and to keep it as a buy and hold. It is now in it's own bear market. Our target is in the area of $9.21 and it closed Friday at $9.39. At 9.21 it will be yielding well over 4% dividend.

February 5, 2011

MORE OF THE SAME . . . Looking at the Value Line (G) index, the market has gone sideways for the last 6 plus weeks. In this 6 week period of time, both price and internal market patterns are telling a story. Both are pointing to a bull market top forming but allowing in the short term more marginal upside action. Since our last update we have added more short positions and will continue to add (dollar average) more at lower prices in ETFs RWM or TWM. Since the middle of December market internals have been breaking down but price action stayed strong. Now that has changed and price patterns are rolling over. Market internals include advances and declines and highs and lows on the NY stock exchange. Price action and patterns are measured on the Value Line Index (G).

Looking at 33 years of this interplay tells a story. The story it is telling today: The market is topping out and will lead to a severe correction or maybe even a mini-bear market(like 1979, 1984 or 1994). At the end of this downturn the market will rally strongly and go on to new highs for its final bull leg. First though, the correction now vs. the market heading higher now. It is a matter of playing the odds and the indicators, showing 33 years of patterns is pointing to the bull resting and a severe correction taking place.

Bottom Line: Dollar average into the following positions for a correction.

Recomended ETFs:

RWM Normal Inverse (Short) small cap Fund
TWM Double Inverse (Short) small cap Fund

January 17, 2011

I would like to go on the record with the following:

The market went to new yearly highs on Friday, I added 2 more short positions at those high points. Looking at patterns since 1979, 1980's internals top is very much like todays market with 1987 and 1998 tops with some characteristics. 1998 price at the top is very much like today. All 3 tops on Value Line and small cap indexes in those time periods had pullbacks of -30% or more. I am looking for a Dow @ 9100 area and SandP500 beLow 1000. Value Line now at 382.39 should drop back to the 265 area. That being said the market may have made its top Friday but more likely we will have a 1 or 2 day pullback and than the market will go to a marginal new high( up to 1% over Fridays high).A Bull Market Top is a long process.