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2006-09-23 :: A Busy Week

It was a busy week in my world.  As you read on Thursday, we have changed our investment strategy for the next several months, until the current correction in the cyclicals, energy and metals stocks abates. 

Toward that end, when the energy stocks rallied we sold 1/2 our positions in a number of names.  We will continue to pare back  energy positions on rallies with the full understanding that we will likely buy back some of those same names in 2007 when the energy bull resumes.

Thursday’s posting also told you how we were going to re-deploy those funds.  From a tactical standpoint, we need to wait to see if the broader market is going to go into a decline during October.  The chart of the Dow you see above (cut/paste from Dick Arms at Realmoney) shows that we are forming a classic “double top” in the market.  If  the index can break above the 11,709 level reached in May, we will put this cash to work in the areas discussed in that posting.  However, Wednesday’s peak at 11,680 and the subsequent fall to Friday’s close at 11,508 seems to indicate the market will follow the standard pattern of a double top and retreat to that 11,300-ish level at the peak of the inverted V in the middle of the W. 

Late September and early-mid October are seasonal downdrafts in the broader markets, before the traditional end of year rally.  Over the next couple of weeks, the most likely course for the market is that the Dow will retreat to the 11,300 level and then rally back to and potentially above the 11,709 level by year-end.  As the market corrects and we see price entry points for the stocks that fit into the revised strategy, we will be putting the available cash to work so that we can fully participate in the rally into the new year.  If we get a quick reversal of the current downward move to break above the 11,709 level, we will invest that cash immediately as the 11,709 level would provide the new “floor” for the market.

For those of you that watch your accounts online, you will see the energy sales settling early next week.  If you don’t access your account online and you’d like to, feel free to contact Andy and he can set you up ( thorman@bankchampaign.com or 217-351-2870 ).

Have a great weekend!

Mark