Quick trivia question: in 2009 and 2010, what month did the Dow make a low?
Answer: July
Here’s the chart (click to enlarge):
As you can see from the circles, July 2009 and 2010 was a low, and July 2011 appears to be following the pattern.
(Yes, I know, I’m lying to you here, because the actual low for 2009 occurred in May, at which point the market recovered to almost break even on the year, before dropping to the July low, but I’m trying to make the point that July isn’t a great month for the markets).
The RSI is at very low levels at the moment, so a bounce up next week would not be a surprise, but a decline to the 11,500 level would not be surprising this month or next.
The real trouble will occur, of course, if that level doesn’t hold, and then it’s crash city. The S&P 500 looks similarly vulnerable:
The nice up channel from March and April, with a series of higher lows, was looking good. Then came the first week of June, and the last two month’s worth of gains were wiped out.
The only good looking chart is gold:
Since the “crash” of 2008 it’s been a long straight line up. Yes, there have been minor corrections, but when viewed from the perspective of a three year chart they are normal, healthy corrections. So I guess that means I’m a big buyer of gold now, right?
Not yet. I’m holding what I’ve got, but I’m sitting on my cash, not buying more, because I remember 2008. I remember that when the general market crashed, everything went down with it. Good stocks, bad stocks, it didn’t matter, everything dropped. When a hedge fund or mutual fund or average investor gets a margin call, they have to sell whatever they’ve got to cover. The logical thing to sell is what’s got the most value, because that’s how you raise the most cash. So, you sell the good stuff, which perversely has the potential to drive the good stuff down more than the average market.
I could be wrong, which is why I’m holding my core holdings. But I don’t expect to be wrong on this one. Markets don’t keep rising forever, and we’ve heard this song before. In fact, we’ve heard it for the last two Julys, and may well be hearing it again now.
Believe in yourself, stay the course, and deploy your cash when the correction happens.
Believe in Yourself
by JDH on June 11, 2011
Quick trivia question: in 2009 and 2010, what month did the Dow make a low?
Answer: July
Here’s the chart (click to enlarge):
As you can see from the circles, July 2009 and 2010 was a low, and July 2011 appears to be following the pattern.
(Yes, I know, I’m lying to you here, because the actual low for 2009 occurred in May, at which point the market recovered to almost break even on the year, before dropping to the July low, but I’m trying to make the point that July isn’t a great month for the markets).
The RSI is at very low levels at the moment, so a bounce up next week would not be a surprise, but a decline to the 11,500 level would not be surprising this month or next.
The real trouble will occur, of course, if that level doesn’t hold, and then it’s crash city. The S&P 500 looks similarly vulnerable:
The nice up channel from March and April, with a series of higher lows, was looking good. Then came the first week of June, and the last two month’s worth of gains were wiped out.
The only good looking chart is gold:
Since the “crash” of 2008 it’s been a long straight line up. Yes, there have been minor corrections, but when viewed from the perspective of a three year chart they are normal, healthy corrections. So I guess that means I’m a big buyer of gold now, right?
Not yet. I’m holding what I’ve got, but I’m sitting on my cash, not buying more, because I remember 2008. I remember that when the general market crashed, everything went down with it. Good stocks, bad stocks, it didn’t matter, everything dropped. When a hedge fund or mutual fund or average investor gets a margin call, they have to sell whatever they’ve got to cover. The logical thing to sell is what’s got the most value, because that’s how you raise the most cash. So, you sell the good stuff, which perversely has the potential to drive the good stuff down more than the average market.
I could be wrong, which is why I’m holding my core holdings. But I don’t expect to be wrong on this one. Markets don’t keep rising forever, and we’ve heard this song before. In fact, we’ve heard it for the last two Julys, and may well be hearing it again now.
Believe in yourself, stay the course, and deploy your cash when the correction happens.
And watch this video.
See you next week.
Tagged as: correction, Dow, Gold