Wednesday, November 10, 2010
10 November 2010 Back From The Edge
Yesterday we posted a sobering if not negative point of view that this rally, called here on the 15th of September, was coming very close to some stagnation that might be declared a reversal. We had a good day today with average volumes so we can stop sweating a bit. Tomorrow we have a trading holiday where we here in the US salute our veterans. Those people living and passed who fought for our current rights and we say thank you.
As far as this market goes, we want to keep a close eye on the volume and the direction on Friday. Keep your stops refreshed. In a couple of the portfolios we took about half of our silver positions off the table (SLV). Rumors yesterday about the CME Group, (Chicago Mercantile Exchange which over sees most of the future option and commodity contracts) will be tightening their margin requirements. Without getting to technical, let say your broker allows a 50 % margin on your account. You put $10,000 into the account, and that margin requirement would allow you to trade up to $15,000 in commodities or equities. You are actually borrowing the other $5,000 from your broker. If your broker decides to change the margin requirements downwards to say 25%, you now have to pay an additional $2,500 into your account to keep your $15,000 in commodities and stocks OR you could sell $2,500 of your commodities to get your account in margin. Today there were quite a few margin adjustment sells. It was a good day to take some profit.
We moved those monies into other commodity ETFs. (We explained ETFs in several earlier posts, but here is a link if you need a reminder.)
The ETFs we suggest you look at are the ones we mentioned over the weekend in the blog about China and JJG, DBA, and PPLT.
JJG is actually an ETN which is similar to an ETF but is totally unsecured by any underlying asset or stock. Its underlying value is based upon an index or in this case the performance of Soy, Corn, and Wheat. This ETN is weighted almost evenly by all three commodities.
DBA is a much broader ETF with exposure to feeder cattle, cocoa, coffee, corn, cotton, lean hogs (seems like an oxymoron to me), live cattle, soybeans, sugar, and wheat.
PPLT is an ETF that invests strictly in the pure bullion platinum. It benefits from all of the cosmetic and industrial demand for the metal. Common uses of the metal include dental fillings, hard drive coating material, cancer treatment and especially automotive catalytic converters and jewelry. The last two categories account for about 70% of global demand for the metal.
As you can see we are making some non stock suggestions to play off the fact that China is buying true assets and the dollar is being devalued which should result in rising commodity prices.
We also watched as a stop get triggered on RINO, the Chinese pollution control device company. We took a 7.2% loss on that stock. It stung a bit, but we did everything right, it just was not meant to be. It will go on our watch close list.
We should learn from our mistakes and this is a beauty. Take a look at the chart below. You can see 9 out of the last ten days it was down with a decent downward trend line showing up on the 2nd of November. On the third is when I should have set my stop in at $16.35 versus the pain I felt today. See, we can learn from our mistakes.
From The Presidential Wardrobe Malfuction Gallery
President Bush and Air Force Cadet Thurvery discovered they were each wearning the opposite Velcro mating materials and had to be physically removed from each other. We are confident that this incident resulted in the recent changes to ACUs (Army Combat Uniforms) that require "less use of Velcro".