Today's Market
by Dr Invest

The market can only be described as confusing. Youv'e heard it said, "You can't see the forest because of the trees." This is especially true of the market. The economic facts don't lie, but when listening to the tumult of voices coming from the economic sector you hear conflicting messages and methods. Who is right? Some times it really doesn't matter.

John Stossel once had a monkey throw darts at a list of stocks, buying equal shares of the 10 stocks selected by the monkey. Stossel then had an investment broker select ten stocks, purchasing shares as directed by the broker. The monkey's portfolio actually performed better.

I asked a scholarly mathematical friend to explain what had happened.   He pointed out that when you have a rising market (market in an uptrend) that even the poor performers will tend to perform better. Also, blue chip stocks more commonly preferred by a broker that perform predictably, have a tendency to neither fall nor rise dramatically. The stocks selected by our furry friend were likely in an uptrend and rising dramatically because of it. Simply said, when the market is an uptrend you are almost assured of success.

Our problem in today's market is that a 2% GDP is in no way a market uptrend; and when you consider the stimulus being pumped into the market, most economists believe that our actual GDP has been artificially stimulated and is much lower. The continued stimulus through QE-3 and twist may keep the stock market climbing and the statistical economic data floating just above a recession, but make no mistake that economic realities are somewhere below zero.

ECRI presently reports that we are PRESENTLY in a RECESSION. I don't think this is a surprise to anyone but the governmental agencies reporting a rising GDP and decreasing unemployment. If we used the government assessment, we could feel fairly certain that Obama's financial plan of more and more stimulus is leading us to new heights of economic growth. Sadly, ECRI has reported that since last year all the economic indicators have been declining, pointing to recession, and that we are presently in a recession. http://www.businesscycle.com/  Achuthan of ERCI has taken a lot of grief from those in the economic community, eventhough the predictions of the ERCI have been 99% accurate. To Achuthan credit, he predicted that recession would begin in September to October of 2012 and now says that the economic indicators show that we are in recession. These economic indicators could be the reason for Bernanke's new dedication to a monthly $40Bln in buying back mortgages for an unlimited period of time, although I think that the election was the primary objective.

Recap

So here is what we know. Over the past 30 years, the market has behaved in predictable ways throughout the 12 months of the year. We invested in TIP and BND ETFs in May because bond portfolios perform well begining in MAY as stocks move toward a poorer performance. Because the FED competes with bond purchases, we have not enjoyed the level of gains we had hoped. Still, our investment in the bond portfolio remains around 1.96% and we hope for 3% by the end of 2012.  This 1.96% is on 33.3% of our total experimental portfolio of $10K.

Two weeks ago, we put 10% of our $10K portfolio in a gold trust ETF call IAU. The reason was because of a technical called a golden cross, showing a potential for gold to rise higher. That gold investment is down 3.56% but was to be held as a long-term hedge against inflation. So the objective is to protect our self against the government printing of money. The FED calls this liquidity, but it flooding the market with extra dollars even though created by computers. There is a possibility of gold dramatically dropping at least for a season, which would present to the investor a buying opportunity. In our case, another 10% investment into gold or silver. Knowing when to buy will be based on economic climate. On going stimulus will surely represent opportunity for gold in 3 to 5 years as inflation moves to a primary position in the economic climate. Failure to deal with the FISCAL CLIFF will certainly bring a rise to gold prices, and any war (thinking of Iran here) will surely bring rise to gold. Most economists believe that a Romney presidency will bring an end to stimulus and improvement in the business climate. Gold could go down in price, at least for a while. Others suggest that it really makes no difference who is president, the ObamaCare plan is certain to keep us in debt for years to come. So we are looking for a downturn in the price of gold, a buying opportunity, and the resumption of the rise in the cost of gold. $2,000 per ounce is projected by some by the end of the year, but I would see that not happening until sometime in 2013.

Over the past 30 years, seasonal charts show the end of October as being an excellent time to enter stocks to enjoy a seasonal uptrend. Considering an apparent slowdown in the growth of companies, extra care will be needed so as not to loose while investing in stocks. The consumer confidence index seems to be remaining high, indicative of a good Christmas season. Contributing information is that seasonal charts shows the stock market remaining high during an election season. When you spend $6 billion on federal elections, people are going to spend that money. I don't have the projected amounts spent on state and local elections, but I'm sure it is equally impressive. So I will be looking at PETM, CATM,  FDO, DG, DLTR just as starters. These stocks have fared well as short-term seasonal investments. More energy needs to come out of the market right now and some suggest a 12-20% drop is imminent. Imminent means many things to different people, so if possible, we want to invest and get some gains before the end of December. At the same time, we want to recognize that market conditions are unfavorable, so we want to prepare for potential loss as well as potental gain.

PETM is a favorite of mine. Year To Date the return has been 31%. It has declined and could decline some more but I think not much more than $65 per share. You will see a green line at the bottom of the range of trading that rests on $65. These are the recent lows in the trading range. It doesn't seem like a fall to $55 per share is likely so $65 is the lower price of the stock and would present a buying opportunity for me. But I am also willing to pay more for PETM as the end of October advances. A 9% rise to $70 a share seems likely and a 12% rise is possible. This could end my trading year a worthwhile experience. Considering PETM has risen 31.33% YTD, a possiblity for a gain is positive. PETM has also had a number of years of predictable gains. So I am looking at PETM as a end of the year investment. (Note, there is no guarantee of returns on any investment you makel and you could experience a loss.) Since a loss is also possible, I will consider how much I am willing to lose on this investment. If PETM drops to $65 per share, I will set my stop-sell at $62.00. If it falls to $62, I will smile as PETM sells.

Now you know what I am thinking. I want a gain, but I am prepared for a loss. I will determine how much I will loose by the use of a stop-sell. In a year like 2012, I would simply be satisfied with a 4 to 6% gain. I see recession, others say, no! A downturn would be horrible, but would open the door for two or three more years of solid market returns.

Note: the above article is for entertainment purposes only and not to be used as investment advice.