One Bankruptcy Starts It And One Ends It?

“It” meaning the bear market.  Perhaps the Lehman Brothers bankruptcy started the horrible bear market we’ve been in since last year.  And perhaps General Motors filing for bankruptcy today is ending the bear market.  Wouldn’t that be strange?  We can’t let companies go under.  What would happen?  The Dow goes up 221 points.  That’s what happens.  I know, it wasn’t a true bankruptcy.  It was a bankruptcy with a little (ok a lot) of help from the U.S. government.  But, it is ironic that we’re rallying just fine on one of the Dow Jones members having to be replaced because they filed bankruptcy.

The stock market had that big run into the close on Friday when a huge buyer of S&P futures contracts came in and pushed the markets up on a low volume day.  The buying continued today and even though there were moments it appeared as if it were going to sell off, it didn’t.  The Dow ramped up over 8700 in the first hour and never looked back.  Steel, China, & everything global growth was up….again.  What was down?  The same old things, the dollar & treasuries, which I remain short.  Remember, I’ve been recommending shorting treasuries through various funds and/or ETFs for quite a while as an investment, not a trade.  This continues to work.  This market is moving not based on technicals, but the fundamentals improving.  Whether you think it is or not, the economy is improving.  Let’s be clear thought.  It’s the equivalent of a 400 pound person dropping to 300 pounds.  300 pounds isn’t very healthy, but it’s much better than 400 pounds and it’s going in the right direction.  Now, we all have concerns going forward about what the government has been doing in it’s effort to help.  Printing all those dollars will come back to bite us down the road.  But for now, it’s helping.  Commodities are going up, interest rates are going up, the baltic dry index is going up, and the dollar is going down.  This is the economy getting better and money flowing into anything global growth and out of anything dollar based.  I believe that will continue for a few months until that overweight person just can’t lose anymore weight.

I had a caller this morning ask what he should do with his short positions.  I asked if he was net short or just had some various short positions along with some various long positions.  He said he was net short.  That’s a tough and awful place to be right now.  I’ve never mentioned going short since March 9th because it was too dangerous.  Selling and locking in profits and building cash was fine and I still don’t have a problem with that strategy.  But, if you’re short, you need to find a reasonable level to cut your losses.  This is a violent run we’ve had and many of you like to use the triple beta ETFs.  Those can be extremely dangerous in this type of market.  For those of you who are underinvested as I still am, average in.  That’s the best strategy you can implement right now.  Many different areas are working right now but you can’t jump in.  I’ve been taking profits and at the same time deploying my cash into some of the strongest areas.  A few weeks ago I sold natural gas and locked in a profit but purchased it back on Friday.  It was up almost 10% just today.  That’s called trading around when you keep your eye on a position and trade in and out of it.  It works well for volatile positions.  But, don’t be afraid to buy.  There is a lot of panic on the part of bears.  They didn’t believe the economy was really getting better but when the ISM number came out today above 50, that had them covering their shorts quickly.  A reading above 50 means actual growth.

With all this said, I want to be clear that I still don’t believe we’re in a long-term bull market.  This is just a long rental or a long trade.  I believe the economic recovery will carry the market for a few months but as always, have your sell strategy.  It’s tempting to buy and walk away but volume is still light and there are still a lot of concerns on my part.  But, for now, it’s fun making money. 

By the way, don’t look now, but the S&P 500 went above its 200-day moving average.  That doesn’t hurt.

Poll Results

I had a poll this morning asking who would replace GM in the Dow Jones.  Would it be Google, another technology company, or a non-tech company?  The majority of you voted for Google.  I agreed with you and thought Google was the most logical choice because they are a good proxy for the economy in the sense that they not only are a technology company but they are an advertising company.  But, we should have known better.  The price of their stock is too expensive at $426.  Remember, the Dow Jones is price weighted so a big price drop in Google would devistate the Dow Jones point system.  So, they picked Cisco Systems (CSCO).  I don’t have a problem with CSCO being added but it’s ironic that their stock is under $20 and it’s the one being added.  Hmm.

This post published at www.karleggerss.com

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