Market and Meaning is our weekly update on market movements and their meaning for you as an investor. Market and Meaning is reserved for premium subscribers but is currently being offered for free to all our readers. As always, everything here represents our personal views and not official recommendations, please do your own due diligence and come to your own conclusions. To follow us more closely at Investor in the Family, be sure to subscribe by entering your info in the field to the right side of our website and follow us on Twitter, Facebook, Scutify, and even Pinterest.
The Dow closed at its highest point ever on Friday, 16,583.34 as all of the other major indexes ended down for the week. Small caps (measured by the Russell 2000) and tech stock (often measured by the Nasdaq) have all had a pretty rough time of things lately. Many high profile stocks had 20% or more single-day drops this week. Whole Foods Market (WFM), Yelp (NYSE:YELP), Groupon (NASDAQ:GRPN), Twitter (NYSE:TWTR), AOL (NYSE:AOL), and many others found themselves on that naughty list.
In many of these cases, the price drops are very over-exaggerated and have provided a great buying opportunity. Even if there were good reasons for the prices to drop, the bad news was not enough to warrant these extremes, in most cases. We have not jumped into any of these names yet, and likely won't. The primary reasons are 1) we are already invested in names we believe in and 2) we are typically not fans of chasing quick money in trades. If these don't describe you, then it may be time to do some shopping.
There has been lots of talk regarding the Chinese company, Alibaba filing the paperwork for a U.S. IPO, allowing its shares to trade in U.S. markets. For those in the dark, Alibaba is basically the Chinese version of Amazon, Dropbox, Ebay, Paypal, Orbitz, Android, Google Maps, Google Play, WhatsApp, Spotify , Hulu, and Twitter; all in one company. They are the largest e-commerce company in China and therefore likely the largest online marketplace in the world. These are all reasons why the IPO is getting a lot of attention.
The Alibaba IPO brings back memories of large, highly touted IPOs that have marked the end of bull markets in the past. There is lots of extra money out there that seems desperate to find a home offering good returns. That is often the sign of a market that is priced high and may be topping out. Another move that appears to reinforce this idea is that Apple (NASDAQ:AAPL) is reportedly about to buy Beats Electronics for $3.2 billion, more than three times what it was valued at last September.
Russia continues its dance in Ukraine with little real change. Putin has appeared to back down a bit in his language, but recent history has already proven that means nothing. Putin's actions in Ukraine continue to be an area of great concern in our view.
What does all of this mean for the investor? We continue to stick with the game plan and are not letting the recent sell-offs cause us to panic. As mentioned before, we have seen the price drops as a great opportunity to use some of the cash we have saved up to buy some of our favorite names like Glu Mobile (NASDAQ:GLUU), Amtech Systems (NASDAQ:ASYS), Apple (AAPL), and Facebook (NASDAQ:FB). All seem to have been pretty good moves, with the exception of FB, which fell further after we bought. Either way, FB is a long-term buy and the recent drop is nothing more than a hiccup in the big picture. Our Yellow Alert for stocks is still in effect.
Current Market Outlook: YELLOW ALERT
The Current Market Outlook is like our traffic light for investing. Green means all systems go, yellow means to be cautious, and red means we believe there are major reasons to be concerned.
In site related news, we have begun collecting key articles written throughout the week and highlighting key quotes from each. This allows our readers to stay up to date on key thoughts and dialogues that are taking place in the investing world. Check them out in our new Current Top Articles section. Also, don't let any more time pass before you read our resource recommendation for Scutify and our updated recommendation for PTT Research.
Gold (NYSEARCA:GLD) closed at $1290.10/oz and Silver (NYSEARCA:SLV) at $19.16/oz. with both down for the week. To read our discussion of a recent gold report regarding the Chinese gold market and its implications on you as an investor, please see Market and Meaning from a few weeks ago.
Our opinion on gold and silver holds firm. As we have said for weeks, we are still looking for one more big drop, perhaps even gold declining to $1000 and silver as far as $16 before a longer term rally begins. We are waiting for these price drops before we buy anymore gold or silver, but have to admit, the current prices continue to tempt us badly. Our general time frame is May/June, but that is being held rather loosely.
That said, if we did not own any physical gold or silver, we would consider the current prices to be a very good entry point for long-term investment. It is important to reiterate that we are talking about owning physical gold and silver coins and bars, not stocks or ETFs. For information on how to buy gold and silver, please see "How To Buy Gold And Silver."
Bitcoin is sitting at around $451.21, up around $30 from last weekend. Bitcoin has been languishing of late, the price has continued to fall with consistency. Each time the price stabilizes at a lower and lower level. The Chinese people are major holders of Bitcoin and the Chinese government has come out as being strongly against Bitcoin. This is not a good combination.
We are officially buyers of Bitcoin when at or around $500 and especially when closer to $400, but are remaining cautious as always with the currency. The Bitcoin price chart shows that prices are currently toward the bottom end of the price range. We intend to have Bitcoin make up approximately 1% of our overall portfolio of investment so when prices drop like they currently have we spend more "lottery money" on Bitcoin, buying some fractional amounts.
If you have been considering buying Bitcoin, these are some of the lowest prices we have seen since the dramatic price jumps in December of last year. Caution and small amounts of money are strongly advised because however things unfold from here, we continue with our view that owning Bitcoin should be equated with buying a lottery ticket. If it becomes "established," it could skyrocket from here, but it could also fail to catch on and crash to $0. For information on how to buy Bitcoin as well as our views on investing in it, please see our article, "How To Buy Bitcoin."
Disclosure: I am long GLUU, ASYS, AAPL, FB.
Additional disclosure: We own gold and silver coins and bars and some Bitcoin.