Daily Investment Interpretations
October 13, 2008
(7:00 p. m.):
The markets jumped about 11.5% today on optimism that the dramatic rescue
measures pledged by the world's governments will work (and maybe, partially upon
the willingness of the world's governments to close ranks and aggressively
attack a common crisis). The Nasdaq vaulted 194.74 points (11.81%) to
1,844.25, the Dow jumped 936.42 points (11.08%) to close at 9,387.61, and the
S&P 500 catapulted up 104.13 points (11.58%, the greatest daily percentage
gain since 1933) to 1,003.35. This was the Dow's largest point jump ever, as was
probably the case for the other two indices. There was a little profit-taking on
the Dow and the S&P 500 near the close, but nothing major. The VIX fell from
71.42 to 55.
Missed today's rally? So did I, but we may have a better chance. Todd Harrison is predicting (Random Thoughts: Saved by the Bell) that tomorrow may be "Turnaround Tuesday". Of course, the markets could go higher tomorrow, but sometime this week, there ought to be a knee-jerk pullback. And this is probably not the bear-market bottom for this multi-year cycle. Our financial houses have many times as much debt as they have assets. How these tens of trillions of dollars in unfunded IOU's will be sorted out and who will be left holding empty bags must be adjudicated after the credit markets have thawed. Even if its an intermediate bottom, the markets will probably retest their Friday lows. Here are more cautionary notes: Two Ways To Play: Monday's Dow Pow! mentions that Google, which closed today at $381, could go as high as $430-$450 before it would be time to take profits. Hugh Johnson, former guru for First Albany, now trading on his own ticket, cautions, Hugh Johnson: Stay on defense, that today's action isn't yet a marker for even an intermediate-term rebound: Mark Hulbert reminds us that today was a Classic buying stampede, with a better than 9:1 ratio of rising versus falling stock prices, but it will take another 9:1 buying panic to confirm that Friday's low was a meaningful turning point. He observes that September 30 was also a 9:1 up day, and it was followed by eight consecutive days of major stock market losses.
So what should we do tomorrow? The U. S. credit markets were closed today for Discoverer's Day, but the three-month euro Libor (London Inter-Bank Offered Rate) posted its biggest decline this year and the dollar Libor had its steepest fall since March. These inter-bank lending rates are measures of credit liquidity, and it appears that a thaw in these rates may finally be here. Tomorrow's report on the TED (Treasury-Eurodollar) spread will be eagerly anticipated, since it's a dipstick for U. S. inter-bank credit availability. In the meantime, prices are continuing to rise in after-hours trading . Also, Japanese stocks skyrocket (up 13% so far tonight). If the markets appear poised for further gains, how should we invest? Today, Todd Harrison bought QLD (the Proshares Ultra QQQ--Nasdaq 100--ETF--Exchange Traded Fund) in the morning and sold it again into the close. QLD rose an astonishing $8.19 or 24.59% today.
He also owns a little EEM (the iShares Emerging Markets ETF), up $5.59 or 22.77% on the day,
Weatherford International(WFT), up $3.66 or 27.88% today,
United States Liquified Natural Gas Company (UNG), up $0.25 or 0.85% today.
Other barn-burners today were Suntech (STP), up 26.48%, and First Solar, up 22.58%, both of which I described yesterday.
If you're thinking that some of us... me, for example... made a killing today, think again. Although I did very well with the little bit of equity I owned, I've been afraid to invest very much in these roiling waters. The last few weeks have featured some of the most dramatic displays of financial fireworks in living memory.
If we're heading into an intermediate rally in a longer-term bear market, then the stock indices have already gained (in one day) something like half what they'll make in the entire intermediate rally.
What I Plan to Do::
I plan to play it by ear. If the markets continue to rise, I'll hang on to the handful of stocks I bought today, and I may buy more at the opening. If the markets plateau and then start to fall, I'll sell if they lose more than half what they're gained. If stocks start to fall from the opening bell, I'll sell what little I bought Friday and yesterday.
It's worth noting that the Proshares Ultra Emerging Markets mutual fund, UUPIX, climbed 40.28% today, to $12.05 a share. Its previous high was about $72 a share, so it can still 6-fold from here. The closing time for purchasing it is half an hour before the market closes. One problem with buying it when its price is rising rapidly is that, by the end of the day, its price may have risen significantly before you can actually purchase it. The way I'm trying to circumvent this is to buy twice as many $'s worth of EEM in the morning as a surrogate for UUPIX, and then reselling my EEM shares just before quitting time, That way, I can capture approximately the day's gain (or loss) on UUPIX. (Since I have excess cash, I can afford to put part of it to work for the day.) Another stratagem would be to buy the $20 January, 2010, call on EEM (-YVKAT). That would give approximately a 2:1 leverage on EEM, analogous to the 2:1 leverage afforded by the Ultra Emerging Markets Fund (UUPIX), so I'd only have to set aside half as much money for the day. The drawbacks to using call options are, first, there is a much larger spread between the bid and asked prices (which can lead to higher transaction costs), and second, the fact that, unlike Exchange-Traded Funds, it can take some time to buy and some time to sell these options.
Other choices for heady additional gains may be Suntech (STP),
QLD (the Proshares Ultra QQQ--Nasdaq 100--ETF--Exchange Traded Fund, shown above),
and PBW (the Powershares Wilderhill Clean Energy Portfolio)
I'll update this in the morning, and I'll try to update again during the day.
2008-10-13 (8:00 a. m.): This article, Making sure gains in stocks aren't fleeting, explains why some caution might be in order with regard to stocking up on stocks just yet. Intraday boosts of 4%-to-5% aren't uncommon in this chaotic market environment. Basically, it says that by Tuesday, the initial optimism will have run its course. Bad earnings reports will be coming in, and the recession is still deepening. If the markets are up by >10% by weeks' end, then it will be time to call this a significant rally.