A new bull market begins like a bear market begins, in fits and starts. In October 2007, the bear market began. But, many investors didn't recognize the fact until January 2008. Some investors even held out hope that the bull was alive until the July swoon. Since the market never went straight down, but did so with a series of lower highs and lower lows, investors held out hopes that every move lower was a buying opportunity.
Now, however, the markets are transitioning from a bear market to a bull market. The all important VIX index popped above 40 3x's this week, and the only thing missing is a big capitulation down day that reverses intra-day, and closes substantially higher on massive volume.
Investors are scared to death. They have the fingers on the sell button, and are ready to cry uncle on the next scary downturn. The media today is using words like "depression", and only a year ago they were touting the "resilient consumer", and "economic nirvana". What a difference a year makes!
With House approval of the $700 billion bailout package, the increase of FDIC insurance on bank accounts (to $250,000), $3.5+++ trillion sitting on the sidelines ready to enter the stock market, and an all out effort by global leaders to find a solution to the credit crisis, I am increasingly bullish. In fact, I am looking at every big down day from here as a buying opportunity. The stock market will not transition into a bull right away, it will do so in fits and starts.
Here's the way I see it. If investors were brave enough to invest in a market when the chart of the S&P 500 looked like this;
decisionpoint.com
Why are they so fearful when the chart looks like this?
decisionpoint.com
The truth of the matter is every major downturn in the stock market has been a wonderful buying opportunity for investors who can look beyond the moment. The key to not being fearful is understand this concept, and adding money to the market in stages, and not all at once. We are not betting red or black on a roulette wheel. We dollar cost average in over time.
Here are our Top 10 ETF's for the week of October 6th:
1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) FXF: Currency Shares Swiss Franc Trust
5) EEB: Claymore ETF BNY BRIC
6) DDM: Ultra Dow 30 Proshares ETF
7) KBE: KBW Bank ETF- Not Rated
8) IYF: iShares Dow Jones US Financial Sector
9) PGJ: PS Golden Dragon China Fund
10) SSO: ProShares Ultra S&P500 Trust
After the November elections and beyond, I am expecting our commodity and BRIC holdings to rebound sharply.
Last week we added the Fidelity Select Natural Resources (FNARX) fund, while selling the Fidelity Select Wireless (FWRLX) fund. We will probably jump back into more energy ETF's and mutual funds over the coming days/weeks.
Here are our Top 10 Fidelity Sector Funds for October 2008
1) FSCHX: Chemicals
2) FSMEX: Medical Equipment
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSPTX: Technology Portfolio
6) FSCSX: Computers & Software
7) FSCPX: Consumer Discretionary
8) FNARX: Natural Resources
9) FSRBX: Banking
10) FSVLX: Home Finance
The Week in Review:
Congressional leaders in the house passed the bailout package by a vote of 263 to 171. The money will be distributed in three parts;
-$250 billion immediately
-$100 billion with the President's approval
-$350 billion upon approval of Congress
Treasury Secretary Hank Paulsen believes the bailout package will eventually break even or perhaps turn a profit.
The month of September has been a gut wrenching one for investors. Last Monday, the DJIA dropped 7% in one day, and out of a total of 21 trading days, 8 of those days the market fluctuated more than 300 points. Stocks had their worst week since 911, and from September 2nd to Friday's close, the DJIA lost -1220.25 points or -10.56%.
If the chaos in the financial markets don't improve dramatically, and fast, it looks as if Barrack Obama is a shoe in for the Presidency. Given all the fear and turmoil, I don't think George Washington or Abe Lincoln could win if they were running on the incumbent ticket.
What's even more amazing, whoever happens to win, will look like a hero because I feel the economy and markets will recover dramatically regardless of whose in the White House. Of course the new President will get all the credit.
For the Week:
INDU :10,325.38/ -817.75 or -7.34%
SPX : 1,099.23/ -114.04 or -9.40%
COMP: 1,947.39/ -235.95 or -10.81%
-Gold closed at $833.20/oz -55.30 for the week. Last week gold closed at $888.50, and was trading at $864.70 two weeks ago.
-The Commodities CRB Index closed at 326.51, down from 364.57 last week, and down from 359.58 two weeks ago.
-Crude Oil closed at $93.88/bbl down from $106.89 last week, and down from $102.75 two weeks ago..
-The U.S. Dollar closed at 80.47 up from 76.99 last week, and up from 77.67 two weeks ago.
We raised our allocations last week by 5% across the board when the DJIA dropped below our 11,300 target. Aggressive, and Moderately Aggressive portfolios should have added another 5% to their allocations when the DJIA broke the 10,600 level on Thursday. Moderate, Moderately Conservative, and Conservative investors are not advised to get fully invested unless the DJIA breaks below the 10,000 mark.
Our current asset allocation is as follows;
80% Equities: (Normally 95%) Aggressive
70% Equities: (Normally 80%) Moderately Aggressive
55% Equities: (Normally 60%) Moderate
35% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative
