Archive for the ‘investing’ Category.

The Top of the Market – It’s For Real This Time!

So it looks like I was a bit wrong when I called the top of the S&P 500 at $1,022.   After going a bit under $1,000, it went on a nice little rally to get up to a peak of almost $1,080 mid-day yesterday before closing at a little over $1,060.    I’m sure there’s a good chance that I’m wrong yet again, but I THINK IT’S FOR REAL THIS TIME.   I’ve got three main reasons that make sense, to me at least:

1) “Be fearful when others are greedy, and be greedy when others are fearful.”  - Warren Buffet

I could link to literally hundreds if not thousands of articles I have seen on Google Finance, etc. etc. in the last few weeks about how this rally has legs.  Only looking at it on a psychological level, this is generally a good sign for a fake rally.    When it is a mainstream view that this is a new bull market, not a bear market rally, after the markets have rallied 60% in half a year, it looks like a sucker’s bet to me.  The real professionals have been in for a minute, and are waiting for all the schmucks looking to get rich quick to get in the market so they can bleed them dry.  It has always been the case in the past, it’s the case right now and it will always be the case in the future.   Remember, when you go to a casino, there’s a few more reminders of how easy it is, and how much you can win than of what you can lose.

2) Unemployment /  Personal Spending

These aren’t one and the same, but they are definitely related.   Currently, unemployment is at 9.7% and underemployment is at 16.8%.   There are an absolute ton of people out of work, and if you dig deeper many of them have been out of work for a minute.    A lot of people who just do not have discretionary income right now, let alone income period.   In addition, many people are being more frugal for a variety of reasons, whether they feel their own budgets being tightened or they feel it is a ‘better thing to do.’   Regardless, a full recovery implies that the economy is back to where it was before the recession began.    It is going to be a LONG TIME before our economy reaches a level of consumption such as that of the past few decades, if ever.    The rally of the past few months has shot so far up that it is implying the market is in fact on the fast track there.   The March lows were a bit ridiculous, sure, but a 20-25% rally from that would imply that we are recovering.   A 60% rally implies that we have recovered.  Big difference there. 

3) “All I know is that this is the first time in the six-month rally that we have seen a reversal to the downside on a positive news day.” – David Rosenberg

This one is somewhat related to the first point.   Yesterday, the FOMC released its statement basically declaring the economy in the early stages of a recovery.  This was around 2 PM yesterday, and shortly thereafter the S&P reached its intraday high of $1,080.  By the end of the day, it had fallen to almost $1,060.   That is a hell of a drop for 2 hours, especially on “good” news.   In addition, the volume of trading really ramped up during the sell-off, as compared to the rise early in the day.   When there is a) “Good News”, b) heavy volume and c) a quick sell off, it means one thing – GET THE HELL OUT.   The big players have found their exit point – if you can mimic their moves, you do it all day long – they do this for a living, after all.

That all being said, since my last post, a quick update on my Roth IRA:

ACTC (Bought @ $0.1265, Sold @ $0.1525) 
The penny stock blues can be a rough game, as this had a huge rally up to $0.17 before coming all the way back down to below my entry point at $0.122 or so.   It had another quick rally based on minor news, and I decided to take my profits and get out at $0.1525.    Kicked myself in the ass when it was up to $0.165 within an hour, but certainly didn’t regret it when it closed at $0.145. 

SPXU (Bought @ $51.75, 09/23 Close @ $44.74)
Obviously I have taken a beating on this one, but that’s what happens when you time a 3x levereged ETF wrong.  However, I hung in there and actually increased my position near the end of the day yesterday.   I’ll put my money where my mouth is and put a risky bet on the S&P Index falling.  However, even if I lose a bit on this trade, it serves as a nice hedge for my 401K index holdings. 

IEF (Bought @ $91.58, 09/23 Close @ $91.56)
Being a counter to my more risky trades, this did exactly what I expected it to and held steady.   Already received my first monthly dividend, so no complaints either way.  I think I’ll keep this one for the long-term to try to balance out any stupid/risky moves I decide to make.

My Investment Strategy – The Top of the Market

Good thing I haven’t put anything on here in months, right?   At this pace I won’t make another post until 2010, but since I’m the only one reading this, fuck it, right?  

Anyway – in my opinion, the top of the market has been reached.   I should probably link to a bunch of graphs showing technicals, but I won’t bother.   On a pure historical basis, after a market collapse, there’s almost always a bear market rally, followed by a pullback.  

We’re up 50%+ from the March low 0f 666, which implies a lot more of a recovery than what is really going on.   Official unemployment is close to 10%, and ‘real’ unemployment, or people who cannot find the amount of work they require, is closer to 20%.    Most consumers are beat to shit from underwater mortgages and credit card debt, and aren’t going to be spending like they did early in the decade anytime soon.    Assuming no unforseen events, the financial markets and economy seem to have stabilized, but it will be a slow recovery to say the least.

The credit markets, which supposedly have more intelligent and researched investors, are pricing in a 2% recovery from the recession.    That would imply a price of $862 on the S&P 500, or about a 15% pullback from current levels.*   September has historically been a down month for the market, and I expect more of the same this month.   Hopefully nothing too dramatic, but I would not be surprised to see a pullback to the $900-925 level by mid-October as investors sit on the sidelines waiting for Q3 results.   Who knows what happens after that, but my prediction is weaker than expected results, and an over-shoot down to 750-775 before climbing to the 850 level around year end. 

*(Information from David Rosenberg’s research, linked)

That all being said, here’s how I am investing these days: 

In my 401K, I am not really changing anything, as I have it set up fairly conservatively, and I have no problem averaging down and accumulating.   It’s tricky/inefficient to time market moves in a 401K plan, and I see a pull-back, not a collapse, anyway.  

I use a Roth IRA to try to actually play the market to a certain extent, as I can invest in basically anything, and buy and sell at any time.  Since the main feature of a Roth IRA is that earnings are non-taxable, I’d rather be ballsy on this front and take some risks to hope for a big-time (non-taxed) return later in life.    Unless I get completely slaughtered and pissed off, I’m going to try to keep track of my thoughts and portfolio changes going forward.   This is mostly for my own historical purposes, and none of it should be considered investment advice; use at your own risk.  However, I figure with thousands of assholes spewing their investment shit every day, one more isn’t gonna stink up the room any more right?

Currently, I have three main holdings in my IRA, all positions taken near end of business on 08/31, with purchase price paid. 

ACTC – Advanced Cell Technology ($0.1265)
Speaking of ballsy investing, “penny stocks” are the stock market’s version of roulette.   Usually a company in its early stages, generallly on that is without any real income-producing products, so the stock price is generally based on market news, and the swings can be major.   More than likely, the stock bounces around before dropping to nothing, and you try to cut your losses before then.  However, if you hit your number on the wheel, that ten cent stock can turn into a dollar pretty quick, giving you some huge returns.    ACTC is a stem cell company involved in regenerative medicine, particularly in the eye.   If ACTC could actually develop technology to repair/restore eyesight, this will really take off.   It’s a risk nonetheless, but I like to gamble, so I don’t have any particular target prices, just hoping to catch lightning in a bottle.

SPXU – Proshares UltraPro Short S&P 500 3x ETF ($51.75)
This is one of the newer leveraged ETFs that have sprung up lately, that give you 2x or 3x the return of the index, or in this case the inverse of the index, that it tracks.    This is another risky investment, as if the market goes lower, I will see huge returns, but if it continues to rise, I can lose a bunch pretty quickly.    This type of trade I feel you really need to have set stops, as it truly is a trade, not an investment.   For reference, I bought this when the S&P was at $1,022, and with yesterday’s big drop, it is now below $1,000.   I will let it ride down to the $850 range, but wouldn’t mess around with it too much beyond then, and, on the other side, would get out if the S&P got above the $1,050 mark. 

IEF – iShares Barclays 7-10 Year Treasury Index ($91.58)
To even things out, I have what would be considered a real safe, ‘risk-free’ investment, in an index fund of mid-dated treasuries.   I think this is a good play for three reasons.  First, if the overall market declines, investors will flock to treasuries, moving up the share price.  Second, the fund pays a monthly dividend based on current yields, so no matter what I should be looking at a 3.5% type annual return for as long as I hold it.  Finally, as mentioned, there is almost no risk to this investment.  Conspiracy theories aside, U.S. government debt is the safest investment that currently exists.   Considering my other two holdings, I feel this is a good correlary and adds a little balance. 

Only time will tell what may happen, so I fully expect to look like a real clown down the road when I look back on this.