Mild Pullback

This is a classic day where the numbers are worse than what actually happened.  The internals weren’t that bad considering a 200 point drop in the averages.  We had a lot of profit taking on everything that’s been working lately.  Global growth, if you will, was down today.  Some stocks pulled way back.  But, I think this is an opportunity to buy them, not sell them.  The dollar reversal is still in play and all the stocks that that benefit from it will continue to move higher.  Also, the metals will continue to do well.  The only caveat is gold is at a technical high where it could roll over.  It didn’t help when UBS came out today and said we could see gold at $300 per ounce.  Not sure about that one.  But, it could pull back more here.  This is why I have a position in silver which doesn’t have the same picture as gold.

Also adding to the volatility is quadruple witching, which is the expiration of options and futures tomorrow.  Tomorrow will probably be just as volatile.  But, as I said, the internals are still pretty good.  We’re going 3 steps forward for every 1 back.  That’s constructive.

Interest rates continued to move down today and even though we know why and we know they may be low for some time, there has to be a bubble brewing in Treasuries.  If you don’t have a short position on treasuries, I’d add one at these levels, at least as a hedge against your bonds.  Speaking of bonds, my position in LQD has been going straight up.  In fact, it’s moving so straight up, that I’m placing a stop beneath it.  LQD is the ETF that tracks a basket of investment grade bonds.  They’ve improved a lot in the last few weeks.  Also, look out for high yield (junk) bonds.  They are starting to move as well.  Money is moving back into riskier assets.  How can money be moving into riskier assets and still be going into basically riskless assets like Treasuries.  Because the government is buying the riskless ones and you and I are starting to buy the riskier ones.  That can go on for some time but eventually I think you’ll see long-term rates on Treasuries reverse. 

If you haven’t been buying in the past few weeks a few stocks as we’ve mentioned here, use days like today to acquire some (keyword, some).  There are more and more stocks looking technically better.  Just don’t go overboard.  Have a nice evening.

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December 2008
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