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Sunday, November 23, 2008

The men won

In my morning blog post, I said and I quote "now is the time the market sorts the men from the little boys, and who can hang in there for the rebound. Or possibly the insanely stupid for staying in the market during a market collapse."

Turns out, the rebound I called for on Friday came. If you bought Thursday/Friday, your account saw anywhere from 3% to 25% appreciation, depending on the stock. GDX, my prime play, went from 18 to 23.03, a 28% gain. This is NOT to say the sky's the limit now. A one day rally doesn't make a trend change. However, it's nice to have some cushion now. As the updated chart shows, what I really want to see is DOW above 8,135 on a closing basis, and follow through for next four weeks to remain above that level to build confidence.

If a local bottom has been found, can expect 1-5 month rally. WARNING: I expect quite possibly for the market to go lower, much lower, DOW 4,000 is not impossible, but not until after Feb 09.
If you failed to sell months ago as warned, if DOW hits 10K, or its February 2009 and we are up (whatever level) I would strongly recommend considering lightening your positions. The next leg down should be a multi-year deathblow to America for 3-10 years to come. The one problem I am afraid of in this speculation is hyper-inflation. If this occurs (which I strongly doubt for the next year), the market will inflate higher, with the US dollar much lower. If you remain in bonds, you will "lose" in an inflationary environment.

In any event, GDX is safest play. On Thursday GDX hit a low of 17.67 momentarily, but it really traded around 18-19 for most of this downturn. It really didn't lose much value considering. (Can't say the same for other stocks or indexes, such as OIH!) This indicates (but doesn't gaurantee) GDX has a strong support at 18-19, so risk to reward is fantastic. GDX was a high of 50 bucks in July. Further, Gold Miners will see a huge drop in costs (fuel being dirt cheap now). Their forcasts for Q4 08, Q1 09 would have factored in fule costs 3x the current level. The combined level of gold value rising, and fuel costs falling should make gold miners have a banner profit next earnings season. And of course, if the DOW does drop to 4K a bit earlier than I expect, well, hopefully gold retains (or gains) value in the panic, helping GDX stay above 17 a share.

This week will likely be choppy, and if we can end above DOW 8,135 EOD wednesday, I'll be happy with the trend change.

I'll make a second post of my predictions for last 3 months, and results, as a recap of the latest downturn (hopefully) has ended for near term.

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