MARKET COMMENT

October 30, 2008

Yep, it was that kind of day. Was there any good news to account for an up day? Absolutely nothing, unless you think the GDP data falling a little less than expected was something to place bets on.

Nope, the market is just oversold and this is the end-of-month prop job mutual funds and a few others need.

I like it since it reduces oversold levels and risks. It’s what we’ve been expecting and why we’re in cash.

What’s next? An election. Despite negative investor sentiment [just my guess so everyone calm down] toward an Obama win which seems likely, a clear win by anyone could launch a further rally and a brief honeymoon period.

So desperate are bullish tape painters they ignored San Francisco Fed President Janet Yellen’s statement that “…recent economic data is deeply worrisome and the economy is likely to contract significantly in the fourth quarter.” Sure, that’s really bullish!

I was day-trading most of the day and got pretty bored with what was light volume action until 3 PM when some bears emerged from their lairs and slammed indexes hard. A battle royal ensued between bulls and bears until the final minutes when bears were vanquished. “Stick Save” bulls!

A special thanks to subscriber and blog reader David Hurwitz who tries diligently to get me “correct” volume and breadth data since Yahoo/Finance data is usually off. Today for instance they have advance/decline data flip-flopped. Anyway Dave is pictured below and his important data follows.

Something to consider as a possibility is to be long TIPs given the 5-year issue is yielding more than the conventional treasury of the same maturity. At the same time you may wish to short the treasury security on the assumption that future inflation is baked-in to future bond prices [lower] given large supply issuance. Further, the treasury may be loathe to issue TIP securities given their understanding of future inflation prospects based on current inflationary policies designed to rescue the economy.

The only ETF available is the iShares TIP which has a maturity duration of 6.65 years as of 10/28/08. You may pair it against IEF [iShares Lehman 7-10 year ETF] or use PST [ProShares Ultra Short 7-10 year Treasury ETF]. A more aggressive but poorly matched issue would be short TLT [iShares Lehman 20 + year Treasury ETF] or TBT ProShares UltraShort Lehman 20+ year Treasury ETF].

With leveraged issues you might choose to use half positions if you seek exposure without the added risk.

This idea is something the ETF Digest is evaluating and is not yet a recommendation.

Oversold conditions are being worked off and this coincides nicely with the end-of-month paint job to prop markets.

Perhaps the next step will be to reshort.

The election is a big issue. According to a recent report a switch from the GOP to Democrats is usually followed by a 10% increase in stock averages. Given current conditions that would be realized in a day!

Earnings are not good and thus far are down 23% for the quarter reduced from a negative 11% from July and a positive 17% from April. So corporate are continuing to deteriorate as do overall economic conditions.

I didn’t post yesterday due to injuring my back which made sitting at the desk uncomfortable. But I follow my friend’s instructions [you know who you are] which are to get your anti-inflammatory meds and throw away the directions. Other than hemorrhaging, blowing out kidneys and liver, I’m doing great thank you very much.

Have a pleasant evening.

Disclaimer: The ETF Digest has no positions.

Last 5 posts by David Fry

• POST HOLIDAY COMMENT December 26, 2008 We went to the Pase del Ni#241;o Viajero (Christmas Eve Children#8217;s parade) in Cuenca, Ecuador. - December 26th, 2008
• MARKET COMMENT December 22, 2008 This is no way to start the holiday week is it? - December 22nd, 2008
• MARKET COMMENT December 17, 2008 Other than the ongoing bond bubble, the abrupt fall in the dollar is other big story now. - December 17th, 2008
• MARKET COMMENT December 16, 2008 Bernanke is living up to his reputation as helicopter drops of cash will rain on markets until his academic research is vindicated. - December 16th, 2008
• MARKET COMMENT December 15, 2008 It shouldn#8217;t surprise that scapegoats are being sought to blame for market declines. - December 15th, 2008