This Week’s Commentary – May 5, 2007 – More Volatility Ahead

by JDH on May 5, 2007

Talk about volatility . Last Friday I was up 10.9% on the year; today I’m up 9.4% on the year. Doesn’t sound volatile? Well, on May 1 I was only up 4.7%, so I lost 5% and gained 5% all in the same week. Talk about a roller coaster ride.

What do I conclude from this volatility? I’m not sure.

One theory is that this volatility is normal at this time of year. Last year we had a big correction in the spring, and for decades stock market investors have said “sell in May and go away”, so perhaps this is all quite normal.

It’s also possible that fundamental, not technical, factors are causing this volatility. Last week we had the decision by the Labor Party of Australia to rescind their official policy against new uranium mines. That caused some people to take notice, but apparently caused most investors to “Sell on news” and sell some of these stocks. Uranium starts trading on the NYMEX futures markets on Monday, which will increase the public’s awareness of uranium. More publicity and liquidity should increase the price of uranium, but it could also be just the event speculators were waiting for to sell to new buyers and cash in some profit.

Either way, these events indicate volatility.

So, what to do? I think the strategy remains the same, but with a twist. I plan to keep holding my blue chip stocks, and ride out the ups and downs. For example, FRG.TO – Fronteer Development Group Inc. is a solid blue-chipper, and I’m holding; you can read about Fronteer here, and see the latest chart, which looks good.

However, I think some more frequent trading may also be in order. If shares are going up 5% one day and then down 5% the next, perhaps it makes sense to actively trade a portion of my portfolio. As of today 13% of my portfolio is in cash. I think I will probably start trading around 20% of it, which means 65% of it will remain invested in solid stocks, despite the volatility.

I’m not yet sure which stocks I will trade; feel free to leave your thoughts on the Buy High Sell Higher Forum, and let’s see how much volatility we have this week.

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