If you know anything about sailing, some times it is tricky to get to where you want to go because you can't always head to your end point. You have to bring the bow through the head of the wind going back and forth (Called Tacking) in order to move in the direction of your final destination. When your bow crosses the head of the wind, you briefly lose all of your power and momentum until you catch the wind in your sail once again.
This effort can be complicated by a shifting wind or even worse, no wind at all. Well you might be asking why am I boring you about sailor tales. This really does describe what is going on in the market. In order to get ahead, you have to "tack" back and forth from up hours to down hours.
We looked at the action today and it was very hard to read just like a wind on a windless day, even though we had some good economic data today with a nice Economic Indicator report. While Italy's Bond number eased a bit, concerns about the groovy guys in Washington striking a deal by next week (You were right Eric, it is next week) is beginning to fade. Our VXX option corrected down a bit and volume in the market was heavy but not for a good reason. The increased volume was due to some option expirations so big money guys had to buy and sell around their positions. We stopped out of all of our AMZN Amazon positions after an 8% drop. Sorry guys, we thought we had a good entry point. Even our AAPL position is under pressure.
Like I said the wind is changing and we have to tack back and forth looking for the nearest safe harbor. This is a tricky market and it takes nerves of steel to make decisions and move on. Having a set of rules is very helpful. O'Neil had a great article this week in the IBD about discipline. It hurts to pull out of Amazon, but I know in the long run minimizing our losses with help protect the gains.
Tomorrow we have our Basketball Team Kick off Breakfast at the high school. We can't wait to tell you all about it. Then I am coming home and reading my Barron's magazine to see if we can tell where the wind will be blowing from next week. Some numbers to keep an eye on would be the DOW as there seems to be no support between here (11,796) and 10,400. That could be quite a ride down? The S&P 500 shows no support from its level of 1,215 and 1,174. It could be very interesting short week next week.
Remember way back when?
It was January 2, 2011 and we provided you a long list of ways to protect your home and valuables from a flood. We then laid out our prognostication for the year in the market. Let me refresh your memory:
"OK, 2010 ended with the Dow at 11,577 indicating a 10.3% return for the year. The S & P 500 did a bit better closing the year up 12.78%. Our index of choice is the S & P 500 for reasons mentioned here many many times. It closed the year at 1,258.76 so that will be our starting point for our prognostication.
In 2011, we will be looking for a total return (realized and unrealized) of 9.7%. This is determined by looking at the 10 Year Fed rate times 2 and adding about 2.7% in dividend returns on stocks and bonds. We think the volume of cash in the S & P 500 coffers will drive a stock value gain of about 7% along with inertia from stock buy backs and dividend increases. Look for year ending S & P 500 of 1,380. Look for a slightly less buoyant Dow figure of 12,618."
Today the DOW closed at 11,796 and the S&P closed at 1,215. With a month to go, the DOW would need about 7% run and the S&P would need a 13.5% run in December. So I am thinking that our guess will be off. With the jitters all about us we are thinking that it will be difficult to show any gain this year over last.
Salve Lucrum
