Monday, October 13, 2008

Markets SURGE -- Caution is Still Warranted

The numbers are staggering...

biggest move in the up in the dow since 1932, s&p moved up over 10%, etc etc etc.

On Sunday I said, "i do believe we see *some* firming of prices over the next little while."

hahahahha...yeah, i guess that was "some". No, I didn't turn into a British gentleman over the weekend, with a mastery of "understatement". The speed of the advance was just further and faster than even I imagined.

In fact, the s&p met and exceeded my interim technical target of 1000 in one day.

the original idea, put forward by elliot wave theorists was that we're moving into a quick "up, down, up" corrective move on the markets. So, what I'm saying is that we'll see a move up in prices, a small rest then another move up...

The original idea was that this entire 3 wave corrective move would take *at least* a week to complete, but the speed of ascent has been pretty breath-taking so far...if this were to continue at this pace (it won't) we'd be threatening our declining trendlines before options expiration at the end of this week.

So what should you do?

If you can't use futures, can't hedge with options, or set stop losses and you are already out of the market, you should probably stay out. yes, you will miss some gains, but the potential for things to get ugly again fast is very very real.

If you are in stocks and have been holding for quite some time, you could possibly use this 3 wave up movement as a selling opportunity.

Why do I say this? Are you supposed to buy once the market starts moving in your direction?

Yes, but only when it's moving along your primary trend. If your investing horizon is the next few years, and you feel overleveraged to stock price movements, the next few days or short weeks could be your last chance to get out whole.

I will doing my utter best to not hold ANY positions overnight that I can't afford a 50% haircut on....this can be challenging in some securities and accounts, but just beware there is still a risk of a MAJOR bond market dislocation, and governments guaranteeing bank transactions that in some cases (in the EU mostly) dwarf the size of their national economies is a recipe for disaster.

it is like tying an anvil around your waist as you attempt to tread water and wait for the tide to come back....

if we start seeing some more major credit defaults of sovereign debt these "guarantees" are going to come under suspicion -- and then what? TEOTWAKI.

On the bright side, it may be our last best chance to get rid of the FED. :)


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