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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
January 11, 2010
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, the spigot of liquidity remained open and continued to push equity
prices higher. Economic indicators were mixed with factory orders up and the
rate of consumer delinquency down, but pending home sales for November were down
sharply (threat of $8,000 tax credit ending moving home sales up) and more importantly,
consumer credit continued to shrink with a $17.5 billion reduction in
revolving credit card availability (-$5 billion expected, accelerated
deleveraging). The Friday jobs number also rained on the bull’s parade as
it came in at -85k (-10k expected). Flying under the radar, but important
nonetheless, was volatility that came in over 10% last week. This measure of
punters buying protection (a/k/a the fear indicator) tells us that greed is
replacing fear in this market. As this is typically a contra-indicator, it warns
us to turn up our fear antennae and to increase our expectation for the
long-awaited correction. In Washington news, one of this pontificator’s
favorite punching bags, Senator Chris Dodd, announced his retirement from the
Senate. It’s widely known that polls had him trailing badly in an
attempted re-election bid for 2010. Also, it’s probable the Dems told him they’d like a shot at keeping his
seat Democratic and Connecticut AG Richard Blumenthal is a better bet. But I
will give him credit for his statement, during his press conference
announcing his “retirement”, that there is “nothing more
pathetic… than a politician who announces he is only leaving public
life to spend more time with their family.” Conclusion: Volatility has
shrunk to levels last seen in May, 2008 when the averages were 25% higher. The
risk/reward calculation points to the following potential action: Should we
continue higher and volatility continues to contract, I will start to add
volatility to managed portfolios as a hedge. Stops continue to rise to
protect gains and minimize losses. Winners will continue to be allowed to run
as we never know where the top is. It’s time to heed the following Buffetism: “Be fearful when others are greedy.”
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