I read the market like it tells me. Although I sincerely believe we are going for a real free-fall this time around, the market may call me wrong, which it does quite often. And I am not afraid of admitting that. As long as we trade in the mind of cash preservation and cut loses quickly, we are in a decent shape no matter what the major trend of the market is. So here is what I am seeing.
DJIA: For Dow Theory to hold true, Industrials may dig below 9800 on this newfound downward trend before regaining its composure. Although, it is likely that the Industrials will creep up for a few days before dipping further. I’d use that opportunity to pick up some cheap puts.
DJTA: While DJIA did a quick, small head fake today, Transports drops below its 3055 support to close at 3051.63. It is clear the Industrials is leading the decline, trying to correct the imbalances between the two Averages, or so called the none-confirmation from Dow Theory. We should see DJTA going down at least 200 pts before this is all over.
VIX: With noticeable correction of all Averages since July 1st, VIX is only slightly above its all time low. This means market professionals are still positive on the market.
SP500: The financial laden SP500 is very close to its previous low of 1079. The breakdown from the big brokerages and WAMU will push it down to a year low.
NASDAQ: While it registered a year low on intraday trading, the tech NASDAQ finished slightly up. It maybe close to bottoming out, but I see it dropping further down as we enter the 2nd week of the earning report. Inventory problem and lower-than-expected guidance will be the theme of this earning report.
The return of the king, CASH is what I suggest to all to weather this storm. Here is another way to look at holding cash. While stock prices drop, your cash is actually appreciating in terms of stock purchasing power, as it will now buy more shares of the stocks. How’s that for beating the market. Remember, beating the market in relative term still means losing money when the markets are down. We don’t want to be in that business. We want to beat the market in actual term.
posted by jason @ 5:23 PM
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