Fed's true color

Today, Fed showed what they really think about inflation (going up) and economy (slowing down), and they reset the inflation target and growth target, this is to manage the expectation better, and allow them more freely to cut interest rate again. Fed's true color is revealed today. Before it's all over, the real infation will be higher than their forecast. Now is a great time to buy commodities. Fed is saying, they have to deal with short term issue (economy) first and worry about inflation later, you know how this will be played out.

1. I sold DBA a few days back to protect my gain, it turned out to be not necessary, it recovered all and hit new record today.
2. I did add GDX using the money I sold for DBA. Since I think GDX has more catch up to do than DBA.
3. I think the Fed will cut rate aggressively to avoid a recession, and this in turn will be a great year for gold and commodities.
4. DBA is a great vehicle to play three of the most important agriculture components: corn, wheat and soybean. All three are in shortage, however, I think they're all extended and specially wheat, with some reports saying Australia will have a record havest year in 2008 due to the rain, from previous three down years. So use a sharp correction to add, and sharp rally to sell.
5. Gold has different purpose, now with dollar in a long term decline, China and the middle east countries, Russia will be forced to use gold as one pillar of their reserve, this will be one of the long term trend in gold.
6. And more investors are using gold ETF to balance their portofio. Even a small 3% in all investors portofio will push gold price much higher.
7. Likely gold will touch 1000 soon (as early as this month), and then 1250 in 2008.
8. Tomorrow ABX and NEM will report. The result will impact GDX performance. In the long run, it doesn't matter their earning is good or bad, as long as they have the gold reserves, they'll be paid, and if gold price keeps going up, these companies will be worth more.
9. Another ETF, MOO is a good candidate to play commodities too. Remember the gold rush, it's not the miner who got rich, it's the people who sold the tools. Add to my watch list.

Higher low for markets

Last week, the market completed a higher low compared to January low in S&P500, Nasdaq, and GDX. If you check the chart of APPL and GOOG, they all made important low. As a result, I think the market is likely to resume its bounce, this time, it first need to test the recent high it could not break(SPY139), if pass that, we'll have a decent bounce(to SPY 145).

Today, even with AIG's news the market holds up pretty good so far.

Recent actions and reason:

1. Added GDX again around 50 last week. This is not well timed action. I thought the PM market would hold well even in the market sell off, not true. People sell PM to cover their losses. After that, it made low of 147 and now back to 148. I expect GDX to do really well if market indeed make a decent bounce.
2. I sold QLD at 72.9, and after that it made intraday low of 66.5 again. I didn't add since I didn't know if market would test Jan. low. Now it is 71.
3. I added AAPL at 124.4 last week, this is the same amount I used to purchase QLD, small position. I think AAPL has the potential to make a sigificant bounce if market bounces. 150 to 160 range is not out of question if SPY bounces to 145. And the downside risk is low since AAPL is such a darling in Wall Street, and it comes down from 200 at the end of Dec. 2007. Way oversold.
4. Added ORCL since it's the best and safest tech play right now, it's a solid position, risk is low, reward is high. As long as market bounces, ORCL should out perform market.
5. Still hold DBA,DBC and NLR. DBA made great run recently, and it likely to continue this record breaking uptrend in the near term. Wheat is in a panic rally mode and it may well triggers soybean and corn to follow it. GS forecast Wheat to increase 50% in 2008. This is the start of another parabolic move! Risk is high, reward is even higher.

Plan:

1. Pretty much hold these positions and lessen up when they make a significant move to the up side.
2. Downside protection should not be there since all these except DBA are formed a nice base. Need to protect the gain in DBA.

Market looks to test the recent low

The bounce is too shallow, I thought it had more room to go, and I didn't follow my own advice to sell QLD when S&P near 1400, I could sell QLD at 78. Yesterday I sold QLD at 72.9,I bought it at 66.5 a few weeks back. Still keep GDX, DBA,DBC and NLR.

1. I think the market may test the recent low or around that low. It's intertesting to see if S&P can hold 1270 and Nasdaq can hold 2200.
2. So if the market can hold these level or bounce back from today's level, I may consider to play the small QLD position again.
3. On the long term view, Fed's aggressive cuts will eventually force ECB and BOE to follow, and it will trigger global inflation in the next 5 years, and this will be great news for gold and commodities in general. So long term I still like DBA, GDX, GLD.
4. If Fed and other central banks successfully avoid recession and put the economy back on track, that will be great news for commodities.
5. If indeed we head into recession, then GLD will do well, but GDX and DBA, DBC won't do too great. NLR is a long term play, like in 10 years, nuclear will be one of the major source of global energy.

Trading plan:

1. If market indeed test low and then bounce back, then will use the dip to add GDX, DBA and QLD.
2. If the market just bounce back from today's level, then I'll trim GDX and DBA if they go higher with the market.
3. Today market's reversal (low, high and then sharply lower) is bearish. On the other hand, the market is back to oversold again, let's see if it can consolidate and then have another strong rally like the one on Jan.23rd.