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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
January 20, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata Financial
Last week, Mr. Market spent the first part of the week testing downside
support at SPY86. After a few meager bounces off this support level, Wednesday
brought a convincing breach to the downside with volume increasing and our
favorite fear indicator, the VIX, spiking up beyond 50. The previous week’s
move to tighten stops significantly allayed the damage this week, as cash was
raised, waiting for our next opportunity to justify a bullish stance in this
market. If you feel as though this market is performing Chinese water torcher
on you, you are not alone. While small losses are not the goal, it allows us
to “stay-in-the-game” and avoid catastrophe until the downtrends become
up-trends. At that point, we can then put the “pedal to the metal” and earn
the premier returns the stock market has historically delivered. Speaking of
catastrophe, consider the buy and hold strategy of Warren Buffet’s favorite
bank, Wells Fargo (WFC). Last week alone brought a 25% drop (with a late
rally Friday) from $25.14 to a close of $18.68. To quote Keanu Reaves in
“Speed”, the 1994 hit movie, on the question of Wells Fargo --- Buy, Sell or
Hold “What do you do? What do you do?” Mr. Market is screaming at you that
there are problems here, but you retort: “It’s Wells Fargo, Buffet’s favorite
bank!” Fortunately, this investment advisor avoids the issue by being stopped
out last week in the mid-to-high 20’s. I do not relish the decision making a
buy and holder has to make in these types of situations (Think Lucent, Bear
Stearns, Fannie Mae, AIG). Back to the future, we must have a plan of attack
for going forward from here. Earnings projections are coming down, but they
still cannot be relied upon for guidance. On the positive side, credit is
continuing to improve, as more and more companies are able to tap the bond
market to raise money. Our government continues to add liquidity in an
attempt to replace demand from the private sector. As each day passes, most
of the stocks in my universe have a 200-day moving average moving down
sharply, meaning our entry points on the way up will be significantly below
the exit prices we sold them at last year, assuming we can remain patient.
After last year’s market, this is a commodity that is hard to muster, but
equity investors must be disciplined in order to avoid the “blow-ups” that
permanently destroy portfolios. Alas, we must continue to have a cautious
bend and keep stops tight, protecting the downside.
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