Daily Investment Interpretations

April 26, 2011

2011-4-26 (Tuesday Night): The stock market indices powered through overhead resistance  and out of their trading ranges today, with all three reaching new highs for this bull market cycle: Street gets earnings bump. The NASDAQ Composite closed up 21.66 points (0.77%) at 2,847.54. The Dow leaped 115.49 points (0.93%) to close at 12,595.37, while the S&P 500 jumped 11.99 points (0.9%) to close at: 1,347.24. Oil dropped a little to $111.95; Gold fell back to $1,507: Gold's 8-day run halted. The VIX fell 0.16 to 15.62.  
    So what should we do now? The markets have certainly climbed a wall of worry. Just a week ago today, it looked as though the stock market was heading for the basement. Now it's making

new highs. I was certainly caught flat-footed by this. (I had loaded up on the Direxion Daily Small Cap Bull 3X shares at $82.65 a share, but I sold them at a negligible profit last Tuesday. Now they're running $91 a share.)  
    My guess would be that now is the time to stock up on stocks, in keeping with Michael Ashbaugh's advice: S&P 500 rattling the cage: Ashbaugh
    TopStock Portfolios hasn't issued a "buy" signal, which is conspicuous by its absence. Of course, the markets thrive on doing the unexpected. Everyone knows that the markets have broken out of their two-month trading ranges, and everyone knows that it's safe now to pour money into the markets... isn't it? But as the above chart shows, last August, the indices hit a breakout peak, only to fall back down again. (Michael Ashbaugh observes that their upside-down head-and-shoulders patterns are "a high-reliability bullish reversal pattern.") 
    This comment on their website may explain why: Quick Comments: Jailbreak!
    My own thinking is to put the bulk of my money into either a 2X (MVV) or a 3X (BGU) S&P 500 ETF. The downside to this is that if the market dips, say, 20% from its peak value, a fund like BGU would drop 60%, to 2/5ths of its peak value. The S&P 500 would have to gain 25% to get back where it was before the 20$ correction. If the S&P 500 rose by 25%, BGU would rise by 75% but that would only take BGU to 2/5 X 7/4 = 14/20 = 07. = 70% of its peak value before the correction. So you have to get out of a fund like BGU before it goes very far down. For that now-and-then situation, I plan to rely on the Daily Decision timing strategy to get me out of BGU in a timely manner. 
    Market futures are up a bit tonight.