Dear Readers,
A lot of profits have been made in the market since last September.
Does it surprise me that the markets took a major step back on Thursday, when practically all of the gains made since late January were wiped out in a single day?
Are you surprised?
The classic "play-it-safe" mentality would tell you that anytime an investor doubles his money, he should sell half of it, and let the rest of it ride. Both the S & P and Dow have practically doubled since the crash. If you're not already defensive, then you may want to reconsider.
In one of our early January issues of Equedia Weekly, "Beyond Comprehension," we predicted the markets would pull back:
"The markets closed very strong last year and as such, we would not be surprised to see a slight pullback between now and Q1 earnings. However, if a pullback happens, we believe the rebound could send stocks a lot higher this year."
Even though the week closed relatively stable despite Thursday's pullback and Japan's quake (which the market has thus far overlooked, but will take notice next week), we should brace ourselves for another round of ups and downs.
I expect more selling pressure and sideways trading as we enter next week's quadruple witching options expiration, which combined with global uncertainty, is likely to keep the market on a bumpy path.
Be cautious.
(Quadruple witching happens only four times a year and refers to the third Friday of every March, June, September and December. It is a day on which contracts for stock index futures, stock index options, stock options and single stock futures all expire. This usually results in increased volatility, as investors attempt to unwind their futures and options positions before the contracts expire. This activity frequently includes repurchasing contracts and closing out position market capitalizations.)
However, if the markets climb next week, we could likely see a very strong bull market for the rest of the year shortly after Q1 earnings are announced.
I don't mean to tell you not to buy stocks, or to sell your current holdings, but having some cash set aside to buy on major pullbacks would be smart.
While it's nearly impossible to find the exact bottom, a big enough dip in a stock you already heavily favour could prove to be very rewarding later this year. I've already begun to, or I am trying to, accumulate shares of companies I really like - especially those in the resource sectors such as the precious metals juniors and the bigger gold producers.
"To make money in the market, I never buy at the bottom and I always sell too soon." - Baron Rothchild
If we are to see a continued pullback over the next few weeks as I predict, it may be the natural correction that we have been looking for what I feel is a short term bull market for 2011. That means, absent of any major oil shock, investors may want to start thinking now about their wish list for this year.
I continue to like precious metals investments such as the gold and silver juniors. Like other successful newsletter writers, I've been favouring gold and gold stocks. But I have been even more bullish on silver, as can be seen in our past newsletters and the investments we have made in the last few years - with all silver investments climbing significantly in value since our initial reports. (see Enron Lives On)
Silver broke through a new high of $36 recently and despite the easy double since our letter The Silver Conspiracy, I think there's still room for improvement.
While many of the silver producers, both small and large, have climbed along with the rise of silver, there are still many of them that have yet to catch up with the new price of the human metal. With the recent pullback in stocks, I am heavily favouring this sector and will continue to pursue my investments in these stocks.