Saturday, October 27, 2012

Weekend Update

As mentioned in our mid week update, we are in a pullback (-4%-6% move lower) or a correction (-10% move lower from a high) at present.  During times like these, it is a good idea to take a longer term view and check the intermediate and longer term charts to gain some perspective.
Above is a weekly chart of S&P 500 index SPY.  Really does not look like much of a correction yet at less than -5% to date and compared to prior market corrections per chart above.  The up trend is still intact with the above weekly chart.  If we correct another -5% lower, the charts would still be in an up trending pattern.
Above is a monthly chart.  Fresh highs were achieved in September, so we can expect some sort of pullback from those highs prior to making new highs in the longer time frame.
The chart above is called a P&F chart, or point and figure chart.  P&F charts are unique because they do not construct charts based on time, it plots prices based on change of direction by plotting X's as the price rises and O's as the price falls.  The chart above has a bullish price objective of 168.00 or around 19% higher from Friday's close. 

Bottom Line:  As discussed in our mid week update, this market is trending lower and may have another (-3% to -5%) on a shorter time frame.  But looking at longer term charts, a pullback is the best thing for this market to experience for potential higher prices ahead. Holding a substantial cash position of 50% or more, and writing covered calls to gain some income for holding what we believe to be quality stocks will reduce some of the risks to portfolios.  We are currently 30-40% long at present. Thank you for reading.

Contact: portfoliomgt1@gmail.com