Tuesday, April 01, 2008

Up 391

The DJIA was up 391 (3.19%) and the S&P 500 rose 47.48 (3.59%) today. What does it mean? Well, unfortunately I don't think it means all that much. We are still stuck in the same range we've been in for the last few months. It was a good day but just that - a good day.

I still think the bottom of this correction/bear market has already been seen, but I saw nothing today to convince me that we are about to enter a new bull market. There are still too many uncertainties for that to happen. That doesn't mean that you shouldn't be doing some buying - I am - but there's no reason to think that if you missed this rally today you won't get another chance to buy stocks closer to the low end of the current range. Later this week we'll get employment data and I don't expect good news. Anything is possible since the employment numbers are a volatile series but employment is a lagging indicator and will likely be the last thing to improve as the economy recovers. At least that's the way it has worked in the past. So, if you found yourself on the sidelines today, don't worry you'll probably have more chances to buy.

The financials were the catalyst today although I must admit I'm not sure why. UBS wrote off $19 billion and the chairman resigned. Lehman raised $4 billion through a convertible bond issue that will dilute existing shareholders. Citigroup was up because...well I have no idea why Citi was up. Hope I guess which apparently does spring eternal. So does this mean the financials are out of the woods? As I pointed out in this post of March 20th, the charts tell a different story. These stocks - even after today's rally - are still in a downtrend. It is possible that all the bad news is finally out, but I'm not willing to put my or my client's money at risk in the sector just yet.

Another trend that everyone seems to want to call an end to is the commodity bull market. I have done some selling over the last two weeks for our clients, but this was due to the fact that our allocation to commodities had grown too large after the big run. Right now, what I'm seeing is that some individual commodities, such as gold, may be breaking down but so far the indices are holding up.



Let me emphasize that I am not making a market call on commodities or gold. I don't have a crystal ball and neither does anyone else. All I'm saying is that the GSCI has not broken its uptrend yet and gold apparently has. Our strategy is not dependent - thank god - on my ability to pick tops and bottoms. All I do is allocate our capital and rebalance the portfolios when things get too far out of whack. That is of course a simplification but that is the essence of what I do. If an asset class - like commodities - becomes too large a part of the portfolio, I sell some and recycle the cash into another asset. If I catch a top or bottom that is nice, but not necessary to generate good returns.

Investing is about controlling your emotions. Don't get too excited about today and don't get too depressed if we have a big down day later this week. Bottoms and tops take time to form; rarely do markets turn on a dime and there are usually multiple opportunities to buy or sell. Patience is indeed a virtue.

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