A Decent Relief Rally, but It May Fail

Posted by Ray on October 9, 2008 under Main | Be the First to Comment

Yesterday we saw 4 reversals in trading on somewhat decent volume, but the market still closed down after being up nearly 200 points. This is an indication that there is more selling pressure to come, especially since the Fed has made such strong moves to quell market concerns.

Even good news, such as unemployment and the fact that the government may buy into banks have not lifted the markets in a noticeable fashion. We hate to be the doom and gloom people and do like to see the market go up, but we feel a sense of duty to tell you what we see happening. The data still says the markets go lower.

We like 40% + cash positions still and would be selling into strength. Friday and next week will prove interesting and we believe you can buy into the markets at a much lower level. We did get some of our day-to-day predictions wrong, but cumulatively we were correct in what we predicted.

We are not rooting for a crash, but it needs to happen. We need the markets to have a swing down and close on its lows with heavy volume. That will represent a bottom and then begin to dollar cost average in as volatility will remain high for sometime to come. This, of course, is barring unforeseen problems such as further bank failures or worse.

I cannot believe we are going to even say this, because he is oh so wrong so often, but Cramer is correct on his predictions of the market. Where we do not think he is correct is in his long-term money. We think you should move some of this to cash as well, the 40% mark is a good place to start. It makes no sense to say that short-term money needs to be moved, which it does, but long-term money should suffer.

At 40% cash you have enough in equities to catch the recovery, whenever that occurs, and enough to dollar cost average back into the market to mitigate potential losses. Right now, it just make sense…unless you think that the Fed typically puts in money to bailout banks, money market funds, bonds, commercial paper and arbitrarily cuts rates overnight.