| Portfolio | S&P | Nasdaq | Dow |
| 8.61% | 13.60% | 28.15% | 8.28% |
The portfolio has lost a little bit of ground since the last post. Now up 8.6% on the year, badly lagging the Nasdaq which is on fire, and the S&P 500.
The big reason for the recent pull back is the untimely purchase of OMN.
I managed to purchase it near the very highest price of this move before it proceeded to plunge over 25% immediately after my purchase. It may have put a swing low near 4.50 and that would be just fine by me. Otherwise, it is approaching my trailing stop and will be sold for a big loss if it continues its downward projectile.
LCC on the other hand is showing a nice gain, not enough to offset the OMN weakness but enough to keep the portfolio from falling apart.
Meanwhile I had closed by FIG position for a profit and traded DTO couple of times, one for a profit and another for a loss, with the profit being larger. All in all, I am down 2% since the last post in spite of being down nearly 25% in OMN.
The run up in the market since the March lows has everybody flustered not knowing what to do. Many people, recalling the rallies during the 1929/30 times, are calling for another huge drop from here to wipe out all the gains and take us considerably below the March lows. Others, are worried about missing the boat and ending the year lagging the broader market and are just now starting to pile back into the market.
As you can see on the weekly chart the severity of the run up since mid March is only equaled by the severity of the preceding drop since mid October. One could very easily argue that both moves were born out of fear and not reflective of the true value of the market, especially with the Government pumping trillions of dollars into the market and the economy. As such, one could argue that the recent move have simple reversed the panic of the prior move from Oct to March and we are back where we should be.
If that is the case then the swiftness of the move over the last 5 months shouldn’t really affect your assessment going forward.
Technically speaking the combination of the moves from mid Oct till now formed a reverse head and shoulders pattern on the weekly S&P 500 charts. We are starting to break above the neckline. A measured move analysis on this pattern would project an upward move to near 1300 on the S&P 500, nearly 30% move from this point.
Also, if you consider that we lost more than 300 S&P points in under three weeks last October then you can potentially foresee a move to 1300 from here in a short period of time.
In other words, it is wholly plausible that we completely erase the downward move that started in October, within few more weeks.
So while the move has been swift and prudence calls for hesitation, do not go shorting the market at this stage. Remember Sir Isaac Newton, an object in motion will continue its motion till it burns out all the people shorting it.
If you are going to put fresh money into the market I would carefully consider the lows of this week at just above 975. This is as good a place as any to put your stops. If indeed we are going to reverse and start a new leg of the bear market there will be plenty of time to go short the market, do not jump the gun. Capital preservation is key. Pick a good stop point here in case the market heads lower. Let the stops take you out, preserve your capital and then prepare to go short if the charts show us the path.