Trading Blog: The World Is Ending and I'm a Buyer
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by Daniel R., Homemade Investors
Friday, October 10th, 2008

We're seeing the type of crash that is witnessed once every few
decades. As of yesterday's close, the Dow had dropped 40% from
last year's highs. By any definition that is a crash, especially since
most of those losses happened in the past 30 days. By now, you
should be aware of my opinion that we're in a secular (long-term)
bear market in regular stocks and in a secular (long-term) bull
market in commodities. However, that doesn't mean that the stock
market can't have a violent rally to the upside after such a severe
sell-off. And if such a rally is to happen, my guess is that it would
begin today or early next week.

What we need for a rally is to have extreme fear (check - the world
seems to be ending) and a hard sell-off (check) followed by an
extremely high-volume rally into the close that takes the markets
near or above the day's highs. That's what I'm waiting for. I did
some buying today. Specifically, I bought a uranium company, two
oil and gas trusts (one of which is currently paying a 30% plus
dividend!), and SPY, the S&P 500 ETF. For the latter, I placed
stops closely underneath today's low. That way, if the market
decides to make a new low today (which would be a bad turn of
events) I would be out with modest losses. If it rallies hard at
some point, then I'll take it home over the weekend. If little
happens, I'll have to reconsider my position at the end of the day.

This is a market for experienced traders and contrarians. Traders
use stops, and contrarians have long-term perspectives. I use a
combination of both when I invest. One contrarian play that looks
interesting right now is energy and precious metals. I don't mean
precious metal stocks (which could continue to sell off), but gold
and silver bullion specifically. Silver's looking awfully cheap right
now at $10.70 (having lost $1.30 since last night), if you can find
it at that price. It's my view that the retail shortage is going to
result in a massive short squeeze that will take the metals
considerably higher, especially when all of this newly printed paper
hits the markets. The inflationary effects will probably be more
noticeable once this crisis has ended and we encounter a new
crisis, a currency crisis.

Happy trading, good luck, and be careful!

P.S. If you've found these updates to be useful, then feel free to
forward a link to this article to a friend. Since this service is free, it
takes a lot of subscribers to pay the bills! (Huh?)

UPDATE: Here's a message I sent out to subscribers via email an
our or two after posting the above:

"Earlier in the day I sent out an email stating that I was taking a
few positions in some companies in anticipation of a high-volume
reversal rally. I also mentioned that I would reconsider my
positions if the market shows a strong reversal by the close. Well,
at the moment the market doesn't look particularly promising,
and I don't look forward to holding into the weekend after a
particularly brutal week. Unless we see some very strong action
into the close, I will probably sell the positions I acquired today.
Looks like a bottom will have to wait until next week, which I
suggested it might in my last email.

"On a positive note (for contrarians, that is), silver has just
dropped down below the $10 mark. If I didn't already own too
much of the stuff, I would be buying right now. But then again,
only physical bars, rounds, and coins. (The best deal I can find
online is bars selling at a 25% premium, and available for delivery
in December. They're not making it easy to buy under $10, are
they?)

"Have a safe weekend. And if you're in the markets, try to do
something fun this weekend to take your mind off things."


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