The Market Crash of 2008 continues. I watched the carnage unfold on my market model in real time and I’ve never seen this level of panic before. Scary. The VIX touched 58 yesterday, a new all time high. It probably would’ve touched 60 if we went any lower than the lows yesterday.
Everyone at work is scared about their 401k’s and pulling money out. What did I do? I upped my % contribution yesterday.
My friends, these are the times that try men’s souls. I believe we are starting “the race” to the bottom (or not).
“We’re seeing panic all over the markets right now,” said Javier Barrio, head of equity sales for Spanish clients at Banco BPI SA in Madrid. “Governments are taking steps to try to reduce investors’ fears but confidence is weak.”[via Bloomberg]
The scary thing is that one of my simulations show the S&P500 could reach 700 rather quickly.
I know this was so last week but CitiGroup is buying Wachovia’s banking business. Whether or not its a smart move remains to be seen but things *might* be turning around for this bad boy. Any glimmer of hope is welcome news to long term shareholders, like myself. What’ll make me feel really good is if CitiGroup (C) can get back above the 50 WMA. At least my $20 average cost positions would offset my $40 average cost positions. :)
Update: I must be cursed. Right after I posted this, news comes out that Wells Fargo wants to buy Wachovia in its entirety. Ugh!
Here’s yesterday’s volatility spike. Â This could very well be the bottom, I hope! Â My S&P500 market timing model made a 4 STDEV move yesterday and issued the strongest BUY signal yet.
I’m very cautious these days because I’ve been averaging down and losing money. Â This is an extremely stupid way of investing in the short term but you gotta think long term here, and have the BOS to do so. :)
Exchange Traded Funds (ETFs) come in so many flavors these days that it’s hard to keep track of them all. I really like them because it gives the average investor exposure to different asset classes such as currencies, commodities, and emerging markets. The beauty of ETF’s is that you can usually buy them for your 401K or IRA accounts thereby giving you the ability to diversify very broadly.
Currently there are 8 major currency ETF’s available that I know of and they are:
Sorry to all you South African Rand and Brazilian Real traders, you’ll have to stick with a currency brokerage account for now.
Update: Soren has kindly updated the currency ETF list in the comment section; it goes to show you that it truly is hard to keep track of them all! As a special shout-out, take a moment to sign up for Soren’s Stock Tweet @ Twitter, it truly is a piece of genius.
Say what you want about Robert Kiyosaki, the author of Rich Dad, Poor Dad, but he’s a smart man. I could help but laugh when I read this line from an interview with The Street.com (emphasis mine):
“I haven’t been this bullish in years,” says Kiyosaki. “What a buying opportunity. … The stock market goes on sale, and everybody runs away.”
But, he’s excited probably only for a short time.“When the market comes back, I go back to sleep,” he says.
I too share his sentiment but I managed to pull money out near the top and buy near the market lows (I hope). As of yesterday I started my program of rotating my cash and bond holdings back into the market and plan to be 95% in stocks by December 2008.
Reader sc suggested I check out the American Association of Individual Investors and poke through their portfolio scans and risk analysis. In the end I signed up as a member of AAII and Riskgrades to help analyze my portfolio risk for my 401k and IRA holdings.
Overall I really like Riskgrades! My initial analysis confirms what my Excel based Monte Carlo sim revealed; I’m doing a good job but I can do better and I have holes in my strategy.
Based on Riskgrades, our retirement portfolio is designated as a growth portfolio with a very low volatility relative to the S&P500; it has a beta of 0.79. My risk was reduced by 14% because of my diversification and 99% of S&P500 stocks are more riskier than our retirement portfolio. The good news is that my individual stock selections (with a few funds) are the biggest driver of my returns but my large cash position (40%) is killing my returns right now.
As I wrote in my Achieving Financial Critical Mass post, I’ll be contributing more money to our IRA’s and selecting more stocks. In our 401K’s, I’m going to start shifting our large cash positions back into the market, over the next few months, into more aggressive funds I suspect that I’ll end up holding 95% stocks by the end of this year with 5% in cash and bonds.
I left work late on Friday because I got distracted running Monte Carlo simulations on our 401k accounts. I’m on a quest to refine my retirement plan of achieving Financial Critical Mass, something I heard about from Bob Brinker many years ago.
Financial Critical Mass is defined as the capital you need in your retirement accounts that will continue to grow after you retire and start withdrawing from it. In other words, your living off the interest of your investments. The trouble is trying to find the right mix of funds of stocks, with the right mix of contributions and savings to pull it off.
Most of my time after work was spent looking on the Internet for the median historical returns and standard deviation of those returns (no easy task) for the mutual funds and stocks we hold. Once I found them, I plugged them into the retirement example spreadsheet that came with Risk Amp and ran the simulations.
The result of my simulations are promising but I did identify some holes in my 401k strategy. For one, we’re not saving enough with our 401k’s alone; we must start contributing to our Roth IRA’s again. Second, we’re not being aggressive enough with our investments; I need to identify more funds with higher historical returns to add to our investment pool.
Although my market timing model helps me a great deal when it comes to making a higher return at the end of the year, I can do more to supercharge the returns on our account.
So what’s the first part of the new strategy now? First I’m going to schedule a monthly deposit of $200 into my Roth IRA and then add to my Noble Corp (NE), ExxonMobil (XOM), General Electric (GE), and Emcore Group (EME) positions!
Yesterday I got a great email from Digital Dude who asked me why I didn’t use a stop when I went long Citigroup @ $42/share and does buying more, now, make it right? I responded by saying that my strategy for long term is different than my short term one. Soon after I posted my reply I realized that my answer wasn’t very clear to Digital Dude and my readers.
Simply put, my strategy in my 401k and IRA accounts is vastly different than my trading accounts, both for stocks and Forex. For my retirement accounts I like to market time the markets (buy in panics, take profits during euphoria), establish long term positions (5 years or more) in specific stocks like XOM, GE, and yes C! I choose these stocks on fundamentals and sentiment mostly and because I believe they’re going to be winners 5 years from now. Just like on my mutual funds, I don’t use stops when entering these positions because I expect to be in them for a long time. I’m always net long in my 401k and IRA accounts.
Sometimes this strategy backfires on me, like it did on Citigroup (C). So why buy more? My long term outlook for C still stands, I think its a great company despite its bad decision with its subprime investments. Now that the sentiment is even worse, rumors of another $18 Billion write down are floating around and fundamentally its become more attractive, I’m looking to add a few more shares to my 401k account. My exit strategy for these stocks will probably be bequeathing them to my grandchildren upon my death.
My trading strategy is entirely different. I use my neural nets to determine Forex trends or potential breakout stocks, I swing or position trade them, and I use stops! I typically place these stops using my Monte Carlo simulations. This works extremely well in the Forex markets I found out. My exit strategy on these are within a few days and occasionally weeks.
Just a word of caution, my trading and investment strategies work for me but they may not be right for you. I’ve learned the hard way over my trading and investing life what works for me and what doesn’t. You’ll have to find your own strategies.
This is just a quick snapshot to see where the S&P500 is going. My long term S&P500 neural net model initiated a SELL signal on 2/28/08 (for 2/29 open) and maintains the short position for today’s open. I guess my Monte Carlo simulation, with its bias to the downside, is being proven correct. I just wonder if my initial downside target of 1291 will be hit.
The Boeing Company (BA) was flying high for a while but recently has been dragged down through this market correction. BA is generally a popular stock and its even been showcased on Wallstrip last week, right before they lost a $40 billion dollar contract to their rival Northrop Grumman. This is a slap in the face for Boeing because Northrop will be using the Airbus’s (their main rival) plane design to replace the Air Force’s aging in-flight fueling planes.
Fundamental Analysis
S&P currently rates BA as a 4 star company and was downgraded from 5 stars at the end of last year. BA pays a $0.40 dividend, its gross margin is 16.1%, net profit is 6.1%, and its PE ratio of 15.8. It has an ROA of 7.3%, an astounding 73% ROE, and a ROI of 16.4%. BA’s earnings grew over 83% for the past year with last year’s earnings being $5.26. Analysts expect BA’s earnings to grow to $5.98 in 2008 and $7.15 in 2009! So far BA looks pretty good and with its recent price pull back, but is it a BUY?
Technical Analysis
The technical picture for BA is so-so on the weekly charts. After peaking around $105, BA has pulled back to the $80 level and below its 50 WMA. It’s looking short term Bearish to me but long term it’s still Bullish for one simple fact, in my mind, it’s above the 200 WMA. But is it a Buy?
Neural Net Signal
My BA neural net model issued a SELL signal on 2/26/08 to open a short position and it remains short going into today’s open. According to the neural net, it’s not a BUY but a SELL!
Price Targets
My Monte Carlo simulation indicates a downward bias for BA at this moment. That’s probably why the BA neural net model is short! The short term downside targets are: $78, then $71, and then $64. The most likely objective is the $71 level. Short term upside targets are $85 and $92.
Bottom line
I like BA for my 401k as a long term play but I’d wait to see if BA keeps selling off as indicated by my neural net model and my
Disclosure: No positions
I make it a habit of “selectively” catching falling knives and yesterday was definitely such a day. I emailed my members yesterday around lunch time yesterday to tell them that my Market Timing model issued a strong BUY signal. Interestingly enough it was at the 1335 level which is right around the 1337 support level I modeled using my Monte Carlo sim.
Could the market go lower from here? It sure could and I expect it to kiss the 1291 level,just like it nearly touched the 1383 level earlier this week. So why BUY now? Why not wait till the knife hits the floor?
Well its true that this type of investing is counter intuitive. No one can every pick the bottom exactly and I’d rather buy quality mutual funds and stocks that are being sold in panic then waiting for a chart bottom to form. It seems nutty and insane but it works for me.
I reiterate my downside targets from here: 1291, then 1245, then 1191. You don’t want to know the levels below that because they are downright scary!!!