11/23/2011
Happy Thanksgiving! I hope you all have a wonderful holiday. Karen and I will be hosting Thanksgiving dinner at our house this year. There will be 14 of us and three dogs (two Springer Spaniels and one Yellow Lab). Karen, myself, and the kids will also be running in the York, PA YMCA Turkey Trot again. Always a fun run and it is so cool to run into so many friends that we rarely see, except for at this annual 5K run. After enjoying dinner, we will once AGAIN, retire to our TV room and watch Christmas Vacation, followed by Elf. Classic movies, that we watch every Thanksgiving. They never get old. Thanksgiving always gives me pause to reflect on a number of things in life. Christmas is fun, but so tiring and busy. It is during Thanksgiving where I like to be grateful for my health, family, friends, food, clothing, and shelter. I am also thankful and reminded of the tremendous sacrafice that our military and their families are making for us. God Bless them! Some are included in this update. Having said that, we would love to hear what you all are doing for Thanksgiving. Anyone running a Turkey Trot? Hosting a big dinner? Traveling? Vacationing? Shoot us an email, we’d love to hear from you.
Two quick pattern updates:
S&P 500 and the U.S. Dollar (We are evaluating a potential investment in a leveraged US Dollar Fund. We think it becomes very attractive if the Dollar closes in the $79 range…more to follow and we may just opt to stand fast with current investment allocations)
Below is the weekly chart of the S&P 500. Draw your attention to the blue trendlines and note the similarity in pattern between today and 2008. Again, we have to respect this current pattern as being bad for equities. We are certainly open to any scenario, but right now we continue giving the bears the benefit of the doubt. We remain conservatively invested favoring bonds and conservative growth funds over moderate and aggressive growth.
Next we look at the US Dollar. For a moment, ignore the red lines. We talked about the blue resistance line last week. As of today, we find the Dollar now at it’s fifth test of this resistance. There is a lot of “white space” or room to explode higher up towards $88 it the Dollar pushes past $79. I find very little resistance between $80 and $88. Now let’s look at the red lines. These represent retracement levels between the highs and lows of the Dollar. These retracement levels can serve as estimates for resistance and support and we need to be aware of them. Bottom line, I see some potential consolidation and trading range activity in the $80 to $82 range. Perhaps a speed bump in a strong move higher. KEY TAKEAWAY from the exercise below, the Dollar is presenting a very ominous scenario for equity and commodity investors. IF this script unfolds, our current conservative posture should serve us well.
So while we are conservative and very cautious, we are open to all kinds of scenarios. We just have to objectively look at what the market is telling us. I think it is hard to argue against a bearish case right now. I could even show a pattern that presents a scenario (UNLIKELY) that could possibly push the S&P 500 into the 1300 range. We also have a monthly momentum model that evaluates seven major asset classes. Since July it has favored Treasuries (as Growth Investors know, we have very robust gains in a leveraged Treasury Fund since this buy signal). It continues to favor Treasuries, but again, at the end of November, if it favors another asset class (AGAIN UNLIKELY), we will listen to it and allocate capital accordingly.
If you have any questions or concerns, please don’t hesitate to call or email me. I’d be glad to connect.
Sincerely yours,
Matt Falvey
Chief Investment Officer
Rich Investments, Inc.
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