Daily Investment Interpretations
November 12, 2008
Today has seen panic selling and a retest of the October 10th lows. The NASDAQ
Composite closed today at 1,499, down 81.69 points (-5.17%)
from its previous bear market low on October 27th of 1,505. The Dow
fell 411.3 (-4.73%) to close at 8,282.66.
but still above its lowest previous close of 8,176 on October 27th, and
above its October 10th intra-day low of 7,882.51. Likewise, the S&P
500 closed above both its October 10th low of 840 and its October 27th close of
848, but only barely, down 46.65 (5.19%) to
end the day at 852.30. Tomorrow may be the moment of truth when the
markets either rally strongly or break to new lows. Oil fell to a new low of $55.18
a barrel, while gold lost $14.58 to close at $718.30. The VIX marched
back up to 60.
The official causes for today's rout were a profit warning from Best Buy and a restructuring of the bailout plan by Henry Paulson that apparently didn't meet with Wall Street's approval.
We are where we are. It may be that I should have sold out in 2000 and invested elsewhere but I didn't. Now it's too late to sell out in 2000, and the urgent problem is one of short-to-intermediate-term tactics rather than that of long-term strategy. Today, I bought shares of the Proshares Ultra Inverse Emerging Markets Fund (EEV) to hedge against further losses in UUPIX. Then I sold them again at the market's close, having made a modest profit on them during the day (though not as great as the loss on UUPIX.). Tomorrow, if the augurs point downward, I plan to buy back EEV at the opening and to add enough QIV (the Proshares Ultra Inverse NASDAQ 100 Fund) to hedge the rest of the mutual funds I own. If the market continues to fall tomorrow, I'll sell almost all of my mutual funds tomorrow afternoon along with some or all of the morning's purchase of inverse ultra funds that hedge them, and vacate the stock market. I'm interested in buying inverse funds to hedge my mutual funds because, between the beginning of the day and the close of the day when the mutual funds are evaluated, they can lose thousands of dollars. I hope to offset those one-day losses with the inverse index funds.
It's always possible that the market indices will turn around tomorrow and soar, but it's hard to see any potential catalyst for such a surge. Only if the indices tread water tomorrow will we sidestep a "moment of truth". If the averages break below their October lows tomorrow, and especially if they close below their October lows, then there's no way of knowing how much farther down they'll go before they hit the next plateau.