Some traders and investors don't like this kind of market action. What is this kind of market called?
Many of us call it the "New Normal" Market Action, and if you control your gag reflexes, it is what it is.
I'm not saying that I like the way the stock and commodities markets are operating or are allowed to operate. All I want to do is "follow how their best customers make profits," so when they are going long, I go long, and when they begin to go short, I go short.
REWIND
In the good old days, we had tape players and tape recorders. When we wanted to hear or watch something again we'd hit the "rewind" button.
That's what I do every time I look at a 3-month stock market chart, like the chart of the SPDR Dow Jones Industrial Average ETF (DIA) I've placed below for your perusal.
Check out those roller-coaster-ride looking up and downs! Some time around the beginning of October (around the 4th) the DIA cratered and began to climb some "mountain ranges." It climbed all the way up to the 122 level and began to dip again.
"Rewinding" lets us see exactly what has been happening in the immediate past, and where the current computer-generated programs may be taking us in the short-term ahead.
Friday the DIA closed around 117.73, which is equivalent to a DJIA of around 11,796.
Now the appearance is that we may be ready to test the 50-day moving average or the October 17, low of around 114 for the DIA and the intraday range on the DJIA of 11,643 and 11,367.
The talking heads on CNBC are suggesting this possibility over the last couple of days, and they've blessed us with scary articles with such titles as "Five Reasons for Investors to Head for the Sidelines."
They warn us that..."Instability in Europe, protests in the streets of US cities and the implosion of a big Wall Street trading firm-it all adds up to be a good time for some investors to hang on the sidelines until the storms pass.
"Such volatility is often thought as good for traders. When others are panicking, straight thinkers can slip in and make profits off the carelessness of others.
"But even some of the most battle-hardened are finding it tough to stay in the game now."
Agree or disagree, it made sense to me to "hedge" my long stock holdings, and that's why I purchased two SPDR S&P 500 ETF (SPY) January 2012 puts Friday.
I'm not regressing, I'm "rewinding" with the hope that if the DJIA and the S&P 500 fall some more between now and the end of November (or as far out as the 3rd Friday in January 2012), I'll have some "protection" and reap some profits.
RELOAD
This is a concept I've written about before but it deserves repeating. If the current market correction isn't the "BIG ONE" or the "End of the World,",it is creating terrific opportunities to buy some great companies "on sale."
Sure enough, I've been buying some of my favorites like Devon Energy (DVN), Chevron (CVX), and more Silver Wheaton (SLW).
These and other great companies are correcting day after day. I'm referring to companies like Heinz (HNZ),which beat earnings estimates by 1 penny and yields 3.6%.
Also Clorox (CLX), Microsoft (MSFT) with its forward PE of 8 and a dividend yield of 3%, and Colgate-Palmolive (CL), which if the share price keeps falling to around $84 would pay a yield-to-price dividend of 2.76%, are looking cheap.
The above-referenced CNBC article had another comment worth quoting:
"Bob Janjua, Nomura Securities' co-head of cross-allocation strategy, said the reason the October rally didn't carry over is because investors are convinced the eurozone debt crisis is spreading, and that the improved economic signs merely reflect a short-term bump from Japan's recovery from the earthquake and tsunami that struck in March.
"While acknowledging the possibility of a rally into the end of the year, he said a stock market bounce would cause him only to consider 'reloading my short risk positions.'"
There's another reference to "reloading" as he refers to "short risk positions" like precious metals companies such as IAMgold (IAG), Goldcorp (GG) and Silvercorp (SVM).
Is he saying he is "shorting" the risk positions? Apparently so, but only after "...a rally into the end of the year," which I also anticipate, and that's why my definition of "reloading" involves going long on "risk positions," which would include Alcoa (AA).
Reloading is not "retreating". That doesn't mean a good retreat, one that helps us to make personal breakthroughs and rest our weary bones, isn't also a wise idea.
Sometimes we need to step away from things and regain our perspective, balance and our breath.
REAPING RICH REWARDS
This is precisely the outcome that we hope to experience after what appears to be a media-driven, emotional and temporary swoon in the major stock market indices.
There are no assurances from a technical or fundamental standpoint that the market will, over the course of the next few weeks, have a "rally into the end of the year."
The U.S. economy is still sluggish, but it's not in the severe recessionary shape we had feared. The economic numbers out this week helped, and they were as follows:
- First-time jobless claims: Down to 388,000 last week — a seven-month low
- Housing starts: Down, but less than expected — 0.3% last month. Even better, the number of permits grew 10.9%
- Mid-Atlantic manufacturing: The Philadelphia Fed index slowed down last month, but remains in positive territory for the second-straight month.
The national debt in the U.S. topped $15 trillion this week. And the debt crisis in the eurozone is getting to the point that the rating agency Fitch released the following statement:
“Unless the eurozone debt crisis is resolved in a timely and orderly manner,” reads the conclusion of said report, “the broad credit outlook for the U.S. banking industry could worsen.”
Our sources and recent historical precedents dating back to 2008 indicate that, indeed, the eurozone debt crisis will be "resolved in a timely and orderly manner."
When it is, the stock markets in The Americas and eurozone will have a huge relief rally, and those who bought either individual quality stocks or index ETFs down toward the current corrective bottom will reap some rich results.
What's on tap for the stock markets as the new year dawns is another topic we will be watching very carefully and with a jaundice eye. Stay tuned and very alert!
