What to Do Here ?……Update, Done Nothing
I generally reject the obvious choice, which today would be to sell out long positions and join the rest of the world in taking a pessimistic view of the automakers. So that answer should be obvious, don’t sell because of the automakers, they are working on solutions to a bad situation. The question gets more difficult beyond that. The market is up a lot from the S&P bottom of 666, that is really the only fundamental reason to sell and it may be valid to take a breather here. ON the other hand the market leader, the Tech Sector has broken through on the upside in the key indicators of the 50 and 100 day moving averages. Bottom-line the sectors looking backward are still in trouble, the sectors looking forward are shining.
One thing that bothers me about the current market is the so-called reflation trade in commodities, what is that about? Is the market dreaming?
No sector of the market is becoming anything close to a bull market, that is years away, and the debate as to whether the market has bottomed or not has no real relevance. What is important is to keep the net asset value of your funds headed higher. So we may sell some positions today in what I would call a dangerous late defensive move, no individual stocks just big ETF positions so that we can quickly buy back after the market takes a breather. We will let you know if we do. This will be one of the more difficult days of the year, ten times more difficult than the 666 day because when this breather is over the market will move into a longterm upward sloping platform trade which will be difficult in which to get cheap positions established.
The EMA ETF Fund NAV was 992 on Fridays close.
8:14 AM CDT
UPDATE at 9:30 AM One hour into trading and we have done nothing with our positions. A number of analysts over the past few weeks, most notably Bob Prechter of Elliot Wave fame, are pointing to the 1938 pattern which would say that the market is headed to the 700 level on the S&P. They may be right but for a number of reasons I think not. To me the glamour of this market move is behind us, and we are in the slow grind upward which could go on for a long time. At the moment the S&P seems to be headed to a test of the 775 area, 15 points below current levels, with the market already 40 points below its recent highs the numbers don’t work for getting out of positions here.