Stocks are trading down heavily this morning with the Dow currently down 330. Despite this we’re not having a bad day as our hedges remain in parabolic mode with rumors of a potential European bank failure.
GLD a new all time high of $174 corresponding to $1800 Gold. Laggard hedge SLV trading higher up $1.65 to $38 and the Swiss Franc ETF FXF trading dow $1.21 to $135 after hitting $140 yesterday.
We remain steadfast in holding a great deal of cash as I used yesterday’s bounce to trim more equity holdings. I have yet to deploy cash in any meaningful way towards equities, the timing just isn’t right yet.
If we had seen a strong opening in the US I likely would have added Inverse Exchanged Traded Funds “SDS”, but the weak opening does not make that a smart trade. Hence a better opportunity to play the downside will present itself eventually.
Market bottoms tend to be a process, not a specific point in time. Stocks will fall to a meaningful low then stage a significant bounce that could recapture 30% or 40% of the decline before selling off once more to retest the previous low. This process can repeat itself several times, in successful bottoming action each selloff has less and less intensity.
Buying the retest is a much better option than trying to be the hero and pick the bottom. Early rallies fail almost every time and its devastating to the psyche to think you may have bought the low only to find that a month or two later you’re right back where you started. In 2008 the climactic low was in November but the best investable low came months later in March 2009.
Brad
Long GLD, SLV and FXF