Great stock trades based on fundamentals and technical analysis.
The month-end window dressing bounce we were looking for didn't materialize today, as the derailing of the "bad bank" idea (that helped cause the financials short squeeze rally earlier this week), at least for the short term, along with a 3.8% GDP drop last quarter, the largest drop since 1982, brought in enough selling to overwhelm the window dressing.
With the break of key support at the October 10 low of 840 in the S&P 500, our trading model stopped out of the small long position and has gone back to 30% partially short, 15% in the S&P 500 and 15% in the Russell 2000. We're replacing the Dow with the Russell 2000 (IWM ETF) because the Russell 2000 chart looks more susceptible, and has more than twice as far to go to revisit the November lows.
The rally earlier in the week relieved the extreme oversold conditions from last week, meaning the bigger risk in the short term is to the downside. The market could go significantly lower, to new lows, before hitting extreme oversold conditions again.
January 2009 has turned out to be the worst January ever for the overall market, with the S&P 500 down over 8.5% on the month. On the positive side, gold and silver had a very strong January, with gold up about 6% and silver up over 12%, which bodes very well for our long-term junior mining holdings.
Open Positions: 15% short S&P 500, 15% short Russell 2000
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