The stock market is back in the mode of reacting to one economic news event to the next and today was new housing starts that were lower than expected just after an encouraging existing home sales a few days ago. Deciding on how to buy stocks can be tricky but a guided approach is often successful.

The indices Dow30, Nasdaq Composite and S&P-500 should make its way back up in a gradual way late next week. Most stocks on the list have been sold. I am not interested in riding down the financials down after such nice profits so the remaining banks have been sold today near the close.

We are in a lull for a couple of days before we go back into many stocks long. We have a “rest day” tomorrow in the stock market on Friday January 30, 2009. Stocks are in transition from a harvest to a point where it is high probability again and we are in between.
Oil could take a period of weeks before it completes a bottoming process. We are looking for $35 to be a support level.

The market respected the technical indicators that support the idea of a mild and short correction that we discussed the last two nights. (I am not sure what the financial news anchors said – were they panicky and started asking different questions like ―Why is the market going down?)
The T2108 chart I’ve shown you on the video report the last couple of nights only went down 2.4% today but the VIX went up 12.53%. That tells us there still are a lot of stocks that were unaffected by the 245 point drop in the Dow 30 or 3% on all the indices. It would be much more comforting to see this chart down to 50-60% of stocks above 40 day moving average before we buy but it is more likely to see stocks move back to a higher high before this 2108 chart drops that low.
We can have high readings in many indicators after a severe sell-off, like we have had in late November. The process of money moving into the market takes a lot longer than you think after a period of fear. As I have explained in a previous report in the last month or so, that the first group of buyers that go in is the smart money (that’s us), then the hedge funds, money managers, mutual funds, then the retail investors who have been on the sidelines watching the market go up. This last group is the dumbest money.
Right after most of the retail investors are invested, then shortly after, the market corrects, which scares the last group out of the market, so they sell. Then the market goes back to higher highs, and the retail investors try again and most get whiplashed again. This is actually a study as well as my observation.
Do you realize that you ―take money from others, primarily from the retail investors? That is why I have said so often that ―the most educated and prepared consistently make the most money in financial markets. And that is one of my primary purposes in the remaining part of my life, to educate, prepare and provide you with stock ideas that have a good probability of making money. If I can benefit you and your family with my own experiences and knowledge about the stock market, then that is most satisfying.
The 693,000 jobs lost in December spooked the market when about 600k was expected and previous reports in the last week set up the thought that maybe things weren’t going to be so bad. Wrong again.
The housing stocks dropped nicely today and should have another few days of gradual correction. A subscriber posed the question if SRS would be a good long trade, which is the Proshares Ultrashort Real Estate ETF. This is a good idea and easily could move into the mid to low 70s from its price of
$52.53 at the close today. SRS moved up 5.6% today alone. So if you can’t get the housing stocks available to short from your brokerage firm, SRS is a 2 to 1 leveraged ETF, consider starting with a small LONG position. When you are long the SRS etf, you are effectively short housing stocks 2 to 1 leverage. Make this a really small position because it is emotional trading leveraged ETF’s that is focused on one sector.
Oil prices did what was expected, a nice correction. USO dropped 10.68% today alone and should follow through on the downside tomorrow. Gradual buying USO at $31 to $32 would be a good idea, remember, gradual. Don’t shoot your whole position allocation to this in one purchase because oil could drop lower, causing USO to get to $31 or possibly lower (not what I expect though). This is the one position that we all should have in the coming months.