Market Calls for Incremental Approach

By: Chris Ciovacco | Wed, Feb 23, 2011
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As of 7:50 a.m. ET, the markets are stable, which is a good sign for now. The situation with Col. Moammar Gadhafi needs to be monitored closely. This morning's Wall Street Journal (WSJ) provides a good visual of the unrest:

On the ground in the eastern chunk of this oil-rich desert nation, the signs of rebellion are plain to see in the armories of a military base near Baida: Weapons crates lie busted open and empty. Rifles are missing from their racks. Left behind are helmets and gas masks and cleaning kits -- things that can't shoot.

Based on the combination of (a) problems in Middle East, (b) weak housing data, and (c) an unfavorable risk-reward environment, we did some selective selling yesterday. We took some profits off the table and reduced exposure to copper (JJC) and agriculture (DBA). We still own both positions, just not as much. Selling a small amount allows us to step away from risk incrementally, which has a few benefits:

The CCM Bull Market Sustainability Index (BMSI) hit 4,195 last Thursday. As the table shows below, markets with similar profiles have been difficult to make money in (not impossible). For this condition to be cleared, the markets need a pullback (Tuesday) or a period of sideways consolidation.

Risk-Reward

From a strategy perspective, we will continue with the incremental approach. If the markets can move higher, we are happy to stay with our longs in gold (GLD), silver (SLV), and energy (XLE) to name a few. If a pullback does become a correction, we mentioned some possible buy candidates in Bears May Be Taken To The Woodshed During Next Correction, including VTI (broad U.S.), XLI (industrials), and XLE (energy). The article (Woodshed) also shows a possible range of major support for stock prices, which may come in handy sometime in the next few weeks.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

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Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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