If You Liked DIA at $100, You'll Love It at $71

By Jim Wiandt

In a market sitting at 1997 levels, I'm asking myself in turn, "Which ETFs should I buy?" and "How are real estate prices looking in South Dakota?" (for my bunker/potato farm)

Are you scared yet? I suppose at this point it's probably more like beaten and whimpering. This is an ugly, ugly market and it feels like capitulation now, with maybe one last free fall in front of us. So hold onto your stomach. And keep your wits, because if you happen to have anything to put into the market, anywhere around these depths is going to be looking great somewhere down the line (though maybe way way down the line).

Matt Hougan said in late 2008 that we'd see 15,000 before we saw 6,000 for the Dow, and I said don't be so sure. Now look at us, and look at my bet on XLF. Failing to heed my own advice and make sure the market found a hard bottom before plunging into U.S. Financials in the form of XLF in early winter, I've seen that ill-advised investment shrink 50% since.

So, let's say you are a capitulation theorist, a reversion-to-the-mean partisan. What is the play from here? And if you're shaking in your boots and just looking to preserve a little of what's left, where should you be?

DIA or GLD? XLF or SHY? (great ticker in this market) Honestly, I think it's prudent to try to find a bottom. And that probably means a market that's 20% up from whatever low we hit. Otherwise, you're likely to be trying to catch a falling knife. But just when people are beginning to feel extremely shy about coming back in IS about where the bottom is usually...the capitulation point. And I'm guessing we're not far.

All the funds I've liked in terms of scaling into, I still do. SPY/IVV or VTI are all going to be good possible bets. You might be even smarter to tilt a bit away from the dollar (which is likely to collapse once we get through all of this), and make a bet on say FXI or CYB (or more broadly EAFE or EM, say. For the ultimate contrarian play, there's the upcoming new PowerShares Mortgage Backed toxic ETF.

Look for more from us on that soon, because we DO think maybe an ETF can save the world.

So once more - a deep breath. This is no fun for any of us. But pragmatically looking at these markets, you've got to love the opportunities.

Before I go, speaking of Diamonds, here's the quick Dow review of the carnage:

Dow Jones Industrial Average

As of February 23, 2009

DJIA, down 250.89 points, or -3.41% to 7114.78

• Fell three straight and eight of the last 10 sessions
• Down -14.08% over the 10-day period.
• Lowest close since May 7, 1997.
• Hit an intraday high of 7441.02 at 09:39:49 today, up 75.35 points, or 1.02%.
• Hit an intraday low of 7105.94 at 15:52:53 today, down 259.73 points, or -3.53%.
• Lowest intraday level since October 28, 1997 at 6971.32.
• 2 of the 30 stocks rose, 27 fell, 1 was unchanged.
• Today's top contributors to the Dow's movement and their point contribution: C (1.51), BAC (0.96), GM (0.00), MRK (-1.75), JPM (-3.11).
• Today's lagards and their point contribution: IBM (-35.20), CVX (-16.96), HPQ (-15.61), XOM (-15.37), BA (-14.73).
• Traded in negative territory for 88 percent of the day.
• The market capitalization of the DJIA fell $77.1B today.
• Off 7049.75 points, or -49.77% from its record close of 14164.53 hit on October 9, 2007.
• Off -43.40% over the past 52 weeks.
• Down -11.07% so far this month. In January the DJIA closed down -8.84%.
• Year-to-date, it is down -18.93%.

Comments

[Jim Hawthorne:]

It's beginning to look mare and more like we're reaching the capitulation level at last. Buyers are becoming more and more scarce, and 'oversold' has become a meaningless term, at least in any past context.

When oil, the banks, the transports and the home-builders start to build solid bases, we can hope for a breakout into a sustainable rally; not before.

Feb 24 08:54 AM

[Roger Knights:]

"SHY? (great ticker in this market)"
Don't forget JNK.

Don't catch a falling domino--there's another right behind it.

Feb 24 09:39 AM

[copper1987:]

You going to love DIA at $60 a lot more.
That's where it's headed.

Feb 25 11:12 AM