April 2010 Investment Report

The market continued to climb, but have thrown many "head fakes"  along the way. Attention has turned to Greece's bailout, but Spain is not far behind. The SEC investigation of Goldman Sachs will be a market game changer. GLD, PSQ, and SH are on the watchlist.

The March 1st follow through triggering a buy signal for the SPY (SPDR S&P 500 ETF) and QQQQ (Powershares QQQ Trust) would have led to gains of 6.4% and 8.25% respectively. This signal was confirmed on 4 reliable sources, but a decision was made to remain in cash. This market has particularly been characteristic of throwing "head fakes" and fooling the crowd, including me. But the rally is showing signs of fatigue, with 6 distribution days on the S&P500 and NYSE. SEC actions against Goldman Sachs also has the potential to drag the market down.

While everyone knows pigs can't fly, PIIGS countries are flying high in debt and are in the verge of taking financial nose dives. Greece saw its bond rating downgraded to junk and are weeks away from defaulting on loans. Yet, unions still may not accept EU and IMF terms of raising retirement age of 53 or give up bonuses equaling 2 months pay. Spain is not far behind as it reported 20% unemployment last month. But this crisis has far greater implications. Morgan Stanley has 69% Tier 1 PIIGS capital exposure and JP Morgan Chase 20%. In total, US banks have $238 billion of investments in these countries. The Euro is also threatened, as the currency shared by the 16 European nations is weakening. Which, also threatens global economic recovery.

A play on the PIIGS crisis is the flight to safety in GLD (SPDR gold trust ETF).  The yellow metal broke out of a double bottom on April 9th, found support at the 20-day moving average and broke out a second time on nearly twice its average trading volume. This can be bought as it falls back to its pivot at 114.11, or preferably at 113.03 which is the 20-day moving average. With the current rally which started on March 1st showing signs of weakness, positions in PSQ (Proshares Inverse QQQ)  and SH (SPDR Short S&P500) will be started when the market signals a Correction.