Click chart to enlarge The market has been going down long enough for us to establish a trend channel that is paralleling its 200dma. The chart of the Dow above shows this channel. During bull markets, 10% corrections are typically not long enough in duration to make the moving average turn down. Being that we're now in a bear market, it is no suprise that the Dow is trading below its downtrending moving average. Any rally, no matter how impressive, is typical bear market action. This holds true until the 200dma starts to trend up.
Anyway, on to the point of this post... we bought some shares of DDM today. Although we would never buy shares of any stock locked in a downtrend, we are willing to bend those rules when it comes to trading the indexes themselves. This is because they have far more resiliency than individual stocks, and are not subject to bankruptcy. We plan on averaging down from here if the market continues to drop. Buying where we did today (at the quarter mark of the channel) has resulted in a profit in every case for the past 12 months. We have no reason to believe that this iteration will be any different. Worst case scenario, the way we see it, is that we break even on the next rally on these shares. In order for that to happen, the market would have to go significantly lower before rebounding. We would be adding on that dip, and the added shares would result in a profit. The only way we can lose is if the market does the unthinkable. We're betting that the Fed will not let that happen. Bottom line... Dow down 650 points from its high set 3 days ago... start accumulating it here. We're 16% in DDM, and 84% in cash.
5 comments:
Hi, Snot,
more people are agaist this bailout package. we are in bear market.
I didnt get chance in solar socks for trade.
Dow may test new low if another panic selling happened today. I have a buy order for DDM 51.5.
i use same style as you. DDM and DXD for best risk control.
Volksrepublik Amerika =
People's Republic of America
So now, these Socialists have finally taken over Wall Street and Washington - the state steps in to save greedy bankers. Lenin will laugh in his mausoleum on Red Square...
I heard here in Germany about holding premiums for bankers, that means, they get money for NOT selling their bank shares.
Anyway. I expect a strong rebound from the lower band of that channel, if the Congress finally ok's the aid package. Bush's planned speech might give the signal.
This all reminds me of China: Bejing also saved her collapsing banks by collecting toxic financial waste in a Bad Bank. And it worked - that's the positive news from this crisis.
newfrankyboy
Given the impending bailout, DDM is probably a wise bet. But I decided to buy FRED, because it is the only stock I could find that is still clinging to a very nice tight uptrending channel. Not only that, but it was at the bottom of its channel at 14.
Picked up SSO (the S&P equivalent of DDM) after hours @ 51.85. I used to have a fear of the unknown aversion to after hours, until I finally tried it. It's seems less stressful than trying to pick a spot before the close. The action is calmer therefore my limits usually get picked up.
So quiet here. I grabbed DXD with 5% my cash position at close $59.7, which is about 50 day SMA. My next buy is 200 SMA $54 if market rally.
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