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.

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.