(click on chart to enlarge)
Meltdown Monday? Well, it's kinda looking like it could be. The Dow hit our minimum target set last Spring of 9750 this morning (which was -570 or so), tried to bounce, but slid again to 9500 (which was -800). It's unlikely that even 9500 will be a serious low, even if it launches a several day run back up toward 11,000. A move above 12,000 would be need to technically turn this market around for a multi month move. More likely, several more up-down sequences lower should at least test 8700-9300 before Halloween, perhaps the mid 7000's. When they got to 9500 at the worst today, a panic buy program was launched on light volume that put 500 points back on the Dow, but they still couldn't keep it above the magical 10k. Remember, on Sept. 25th, we wrote, "THE MARKETS ARE AT THE HIGHEST RISK OF A CATASTROPHIC SELLING EVENT SINCE 1987. If our lawmakers play politics too long (and I means in hours, not days), we are going to see the "BIG ONE"! Any break of Dow 10,500 should launch a landslide of selling to at least the 9,500 area, more likely 7,500-8,000 (another short term bottom should be created there). Only an immediate move above 11,500 will postpone the coming slide (perhaps allowing 12k to 12,300 in a panic to buy like last week), which could easily slash another 2,000-4,000 off the Dow this year." Today's low was 9525, 1500 Dow points under the close on Sept. 25th at 11,000. Some might call that catastrophic, but it wasn't, YET!
By the way, all this selling is happening without the ability to "sell short", which doesn't come back online until Thursday, unless they postpone it again. So, the media's story that short sellers "caused" this slide is proving to be faulty.
The carnage is wide and deep, and I feel you pain, for I've been trapped in situations like these in the past. This is a bit different than past bear markets, as this one sat on top of the largest credit extension in history. Regression toward the mean suggests that this correction becomes as overdone to the downside as the bull market became to the upside. If this is becomes reality, my halucination of Dow 5k and S&P and Nasdaq 500 levels. Question: Are we closer to the top or the bottom? Well, let's say we're in the middle. From 14,200 to 9800 is 4400 points. If we're half way, then we subtract 4400 from 9800 and we come up with 5400. Hey, that is a number I can justify with multiple targeting methods, and have for over a year if you've been keeping track. What if we're closer to the bottom? Okay, let's say we're 2/3's done. Now we can target 7600 Dow for the ultimate low. But, what if we're closer to the top and are only 1/3 done? Then, we have to target that scary post 1987 crash low of 1700 Dow. Okay, even I don't want to consider that, although objectivity demands that I must keep it in my head.
The "markets" now want a Fed rate cut, and they may childishly pound on the floor (prices) until they get their way. I will use the 7500 area to become 1/3 invested; the 5400 area to become 2/3 invested; and, save the final 1/3 for either the 1800 area or the break back above 11,000. The hardest decisions in the world will be to invest money at these levels, but I have found when I have a plan, write the plan down, and review the plan when I feel anxious, my odds of execution of the plan increase dramatically.
(closed trades are always in black type)
INTERESTING PLAYS TO LIGHTEN UP ON OR SHORT SELL: Currently, there are no open short positions, which usually happens close to market lows. But, stay tuned. We took amazing profits into the Freddie/Fannie failure and will re-short on a reasonable rally.
INTERESTING PLAYS TO ACCUMULATE OR BUY: GE under 20 (entered 19.99 on 10/9) and adding under12, BX under 10 (lower from 11 on 10/9)(entered 9.99 on 10/9) adding under 5, GS under 75 (down from 85)(entered 74.99 on 10/10) adding under 50, MSFT under 21 (up from 18 limit)(entered 20.99 on 1010), YHOO under 20 or above 22 and adding under 13 (entered 19.82 on August 11), GOOG under 390 (entered 389.50 on 9/28, using break even stop as of 10/2, exited at breakeven on 9/29) and under under 310 adding under 230, EBAY under 19 (entered 18.50 on 10/6) and adding under 12, DELL under 17 (entered 16.50 9/16) and adding under 10, SMH (entered @ 25 on 9/15 at market open) adding under 21, SLV under 10 adding under 7, SBUX under 13 (entered 12.99 on 10/6), RIMM under 95 (entered 94.99 9/16, exited 99.99 on 9/25, +5.00 or 5.5%) but will re-enter under 63 (re-entered 61.18 on 9/29, stop set at breakeven 10/2, exited breakeven on 10/6) re-entering under 53 (entered 52.99 later on 10/6) and add under 41, AAPL under 135 (entered 134.99 9/16) adding under 90 (entered 2nd time 89.99 on 10/6) and under 65 , INTC under 19 (entered 18.99 9/16) adding under 14. CRM under 45 (entered 44.99 on 9/29) adding under 32. SBUX under 13 (entered 12.99 on 10/6) and adding under 8. And, new additions in the natural resource areas...RIO under 18 (entered 16.88 on 9/29) adding under 8, and PCU under 19 entered 18.88 on 9/29) adding under 8 for 50% pops. SCHN under 28 (entered 27.99 on 10/6). UWM under 32 (entered 31.99 on 10/6) and adding under 24. IBM under 90 (entered 89.99 on 10/8) adding under 75, and HD under 19 (entered 18.99 on 10/10) adding under 13. Long the Euro under 1.3500 (entered 1.3498 on 10/6, placed break even stop on 10/7, exited 1.3808 on 10/9, +3.1 handles or $3750 per contract). If out I'll buy around 1.3450 to 1.3350 (entered 1.3400 on 9/10, stop places at breakeven on 10/12) adding around 1.2850 to 1.2650.
For what it's worth,
Ken
