Back in

After Fed's 75 bps cut, and the way BSC was handled (or more accurately, mishandled by the Fed), and the way Fed injected liquidity like this is the end of the world, I think we'll likely to have three outcomes in the near future:

1. This is the double bottom and market will rally from here.
2. There is another shoe to drop and the market will eventually break the low and start another down leg.
3. Inflation is becoming higher than people expected and stay high for a long time.

Out of these three, I am not sure about 1 and 2, but I am pretty sure about inflation. Fed is using rate cut to inflate us out of trouble.

Yes, dollar rallied since it's only .75 cut, yes, gold and commodities got crashed. I think it's time to add. On the gold crash, it's biggest weekly drop (actually only three days) in 29 years for gold. I think there are few forces behind the sell off:

1. Funds raise cash, selling the profitable commodities and precious metals. Why do them raise cash? Is there another credit crunch coming, like BSC?If this is the case, the sell off is pretty much over and funds will move back in soon.
2. Funds rotate out of commodities and move to other beaten down sectors. If this is the case, the down side for gold maybe is at $850 or even $800.
3. Hedge funds are unwinding their long positions in commodities to meet margin call. Then the sell off is short term.

I think the sell off is likely over, long term fundamentals for commodities is still intact. I added about 1/3 back into commodities: DBA,DBP,SLV,GLD and DBC. All of them are at least 10% off high and some are close to 20% off high.

Will add them again on another sharp correction unless my thinking is changed.

I think DBP is a pretty good choice since it has 80% gold and 20% silver.

Out

After yesterday's rally, today I decided to move to the sideline. I think it's a bear market's sharp rally and there are more downside to go. Late afternoon's selling proves my point.

1. Sold AAPL for a tiny gain.
2. Sold ORCL.
3. Sold ABK for a loss. I learned the lesson, will not play these kind of stocks for a long period of time. I had my moments to sell for a profit, I didn't.
4. Sold NLR for a loss.
5. Sold most GLD for a small gain.
6. Now I'm almost 100% cash, a very small GLD, and that's it.
7. So far in 2008, I'm ahead due to the gains from GDX, DBA and DBC. Losses are from ABK and NLR, fortunately, they're relatively small.
   
8. I need to follow this idea in the future: to add big positions on safe and sound tradeable ideas, and limit speculative trades to a smaller size.
   

I expect to add GLD, SLV, DGP, DBA and DBC on commodity corrections, and add them over time.

I expect market to go lower over the next few months, when that happens, gold and other commodities will go lower with the market.

Weekly review(GLD,GDX,DGP,ABK,ORCL,AAPL,DBA,DBC,SLV)

For the week, market dropped again and touched a new yearly low. The bounce didn't come. Dow, Nasdaq and S&P500 all had a new close low. The oversold market gets more oversold!

Considering the gain in gold recently, I decided to move to cash, leave small positions in GLD, NLR, ORCL, ABK and AAPL.

Actions:

1. Sold GDX for some decent gain. I think if market tanks, GDX will follow, even GLD will be sold to cover losses by funds.
2. Sold DGP, I thought use DGP to play gold, but since I sense there is a danger that the market will sell off, I decided to take a tiny gain in DGP and raise cash.
3. Added GLD. I think will keep this one, and add GLD on the way down. Like I said before, in this bear environment, I think GLD will outperform GDX. And I'll use DGP as well.
4. ORCL. I think if the bounce doesn't come, maybe this one is too early.
5. AAPL. Good value, again hard to profit in this bear market. Push feature will eventually put RIMM into a bad position. AAPL will do well in the long term, if economy is not tanking. Very small position.
6. ABK. This was a mistake, even for small position. I had chance to sell at 12 after get in in the low 11, I didn't. Then I got second chance to sell at 11.8, and I didn't. Today it reached low of 6.5. Strangely enough, it closed at 4:00Pm at $7.3 and then 4:06PM at $9.5, up 28%. I think the banks and ABK were designing a smart plan to rescue: 1.5B at $6.75(They get in at $6.75 for $1.25B raised for ABK), and then use some funds to support the stock price., who can push the stock from $7.3 to $9.5 in 6 minutes??!!
7. NLR. This one was a mistake too. Now I'll leave it as a long term energy play. But if it recovers most of my losses quickly, then I may sell it. Again this proves that good idea doesn't translate into profit, you have to watch market action, fundamental and technical analysis won't do it!
8. Market action has to confirm your analysis, it's not the other way around.

Next:

1. If there is another capitulation in the stock market, like the one in January, then I'll add again. I think it's likely we'll get one, pull down PM and commodities as well. Then it's time to add.
2. Before that, I'll wait it out.
3. Add mainly GLD, in addition, use SLV and DGP to support the PM build. DBA and DBC are candidates as well.
4. For gold, $940 area is a good target, if we get there.
5. Sell ABK, ORCL, AAPL if market rallies. And only play speculative positions in small amount, to reduce the losses.
6. Dollar is in a very oversold area, there is a chance that it will bounce hard against euro, maybe around the time Fed cuts again, specially if it rallies against a Fed cut, that will be a powerful turning point.
7. And I think the bounce in dollar will be short lived, maybe 10% in a few months, after that, we should see it's going down again.
8. Still think gold will touch $1250 this year, now the question is, will it go to $900-$940 first? Today it's around $970.

Likely a bounce

If Ambac gets the rescue, likely the market will have a decent bounce, since we're oversold and bears could not move the market any more.

I think gold is at a critical point, either we pass through $1000, or we consolidate right here, before make another push higher. I think the game plan is to add over time.

After carefully reviewed GDX, DBC and GLD. I think now is a time to just buy GLD. There are risks involved in GDX, and recently GLD outperformed GDX.

So I'll reduce GDX, I already sold DBC. And I added DGP, it's double gold ETN. If I truly believe gold will do well in the next 12 months, DGP will likely to double the return of GLD.

So my plan is simple:

1. GLD and DGP are the main positions to build.
2. Reduce GDX.
3. Hold some small speculative positions, currently I have AAPL and ABK. I think both of them will have a big bounce if positive news come out. I almost pull the trigger on MF when it came back from 14 and finished around 17, but I didn't and missed it.
4. Watch DBA, DBC. They are too far ahead and if economy is heading into a recession, common sense says commodities shall head lower.
5. China will control price on foods, said the premier, this will cool the red hot commodities markets over time.
6. So to play inflation over the next 12 months, or this economic cycle, gold should be the main focus. GLD and IAU. If you're very aggressive, then DGP.
7. GDX will outperform GLD in a normal environment, but with energy cost and environment protection around the world, I think the cost of gold mining will increase dramatically, so GLD is far safe bet than GDX, even with less return.