"Anonymous" made an excellent comment that I would like to expound upon.
While the DOW they believe will trend up they also believe the stocks will trend down.
As an investor you need to decide (even if this is managed money, the manager needs to understand your wishes)what you want to do. Obviously "Anonymous" is trading the market and trying to capture some movements. I have at times approached this way too. I have a neighbor that works for the SEC. His claim is that we have already dropped enough that he is interested in getting back in. I said I expect 5000 on the DOW before it is over. He calmly said to me, the DOW has already dropped enough that even if I am early it has still done 80% of the damage.
Now his risk of not being in the market when it runs is more over powering for him then the risk of a potential 10-20% more drop. Is he wrong? Not at all. In fact when I was rolling clients 401ks that they had no control of into income funds way back in May of '07 he stayed in until Aug of '07. If he gets back in now he is fine with this.
I use this only as a long response to what others are thinking in this market.
As anyone knows I am ultra conservative in my approach. That is my risk tolerance.
GE puts anyone? If you missed it, don't try it now.
Later
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While DJ is up from Nov 21 low, many stocks are actually lower today.
In no way am I trying to say that we have bottomed and that the economy is picking up from this point.
All I am saying is that DJ as an index is being propped up to look as if we're out of the woods already.
You also made a comment a while back about buy and hold, which is still true today.
While the DJ index kept going up for many decades, a lot of stocks went dow, or event got delisted.
A very simple example (not a perfect one either) is GM.
In 1999 it had its peak at almost 75 a share. At the top of the market in Oct 2007, GM had a high of only 34 and some change.
So, if anyone is keeping an eye on the DOW to feel the pulse of the market, the only thing you're getting is false information.
What I believe is a good buy and hold strategy is buying DIA or other products that mimic the movement of the DJIA and shorting other stocks at the same time, or even selling calls.
What's the downside for getting long DIA(DJIA)?
It will drop 1000 points? You can make that up by selling calls.
I am only looking at the risk involved in this long term on the DOW.
The downside risk is still very low.
At any point the DOW will drop significantly, it will come back with a vengeance. There are automatic trades triggered by computers and so on.
People will believe that DJ being at or below 7800 is very cheap and they will jump on it like there's no tomorrow.
So, when the DOW drops and goes against you, it will only do it for a very short period of time.
And maybe that is a perfect opportunity to acquire more long positions.
Even if it stays in a range like it has been for the past 15 weeks, in my mind it still makes sense.
Now I am waiting to go short the DOW on Monday maybe. It is overbought and maybe will we'll have a big surprise with the stimulus package.
It is almost set up for another fall.
7900-7800 range is my entry point for a long position.
On a full Moon (Feb 9) it always acts very weird. It may go up, but immediately drop like a rock.
So, we may still have a bit of enthusiasm left for the stimulus package, but some bad news or maybe logic will make its way back into the market.
The market goes up on rumors, but falls on reality.
The almost 600k jobs lost and the revised unemployment numbers (about 3.6 million) from last year will certainly come back into the market.
Funny thing how those numbers get revised... for the worst.
Thursday night I entered a long position due to purely risk management.
It went against me while I was asleep and during the announcement of the NFP, but when I woke up this morning my position was in the money.
It was a pure take on risk. It dropped 100 points or so, but came back in force right afterwards.
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