The Dow Rally

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Despite a nearly 1,000 point rally, the Dow could have further to climb. The fall was so intense that it left the Dow in such a severely oversold condition that we would still be oversold at 10,200. This is the bottom of channel, some 800 points higher. We would certainly unload some DDM there, but not all of it. We're perfectly content holding the Dow if the next move is to the downside. We will have no interest in individual stocks until the next bull market, which will not begin until the market indexes are trading above uptrending 200 day moving averages.

If you played your cards right and averaged down appropriately, buying more as DDM got cheaper, you should be breaking even by now. We aren't, which is partly our fault and partly Ameritrade's fault for being out of service last Friday. Still, we're down only 2.2% since June 1st, while the Dow has fallen 26%. This is primarily because we've avoided buying individual stocks and have chosen to only trade the indexes as long as the market remains in a downtrend.

The problem with buying individual stocks now is that you'll probably gravitate towards stocks that were recently popular, like MOS, POT, MTL, etc, because they're familiar. This is a very dangerous mentality because once a stock has been in the limelight and forgotten, the odds of it returning to glory are extremely slim. Only in very rare cases (like AAPL) does a stock get a second or third chance. Most forgotten stocks go directly to $0 without passing go.

Thanks for the offer to buy your MOS, CROX, FWLT, JASO but we'll just wait for the new wave of cool stocks to come along. We have the indexes to play with in the meantime.

Ok, so where do we go from here? We don't decide that, the market does. This part is easy... If the market drops, just hold DDM or SSO. If it goes higher, begin to unload slowly. No need to run for the hills. After all, we're still oversold. If the market surges considerably higher, we'll start looking at layering into DXD or SDS, but it's too early to consider shorting the indexes just yet.