Quest

Action is the key to your success. You must continue to actually apply your ideas in order to move forward. Taking action will keep you excited about your quest.

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Big Gap Open -- Opportunity?

The big up opening of the market tomorrow may present an opportunity for a short term buy. The SPX and NDX futures are each up over 1% this evening. When the SPY has opened up by at least 1.5%, buying the open has presented a marginal opportunity for a short term trade.

The chart above summarizes the results for the close the day of purchase and one, two, and five days after purchase. Buying the open and holding to the close of same day returns an average of 0.5% and was a winner 64% of the time. The average return from holding until the close of the next day was 0.7% and was a winner 64% of the time. The trade is not statistically significant for a hold time of two or five days.

Frustration

Definitely a frustrating period in the markets. Speaking of frustration... an interesting article at Scientific American concerning 'Midlife Misery'.

Turning Japanese?

Something to worry about... Will the United States' economy become mired in deflation like Japan? Can the Fed reinflate and generate yet another bubble?

Truth Takes Time

Well.. the market is now back to overbought after rallying for two weeks. There should be a pullback of some sort shortly. If the market can merely pullback without falling apart, perhaps we can conclude that an intermediate term bottom was made two weeks ago.

We are approaching the point where hedges will be re-established if they were lifted after the plunge. Should a short hedge (or speculation) be initiated this week? No matter what methodology you use, there is always an element of uncertainty. Stick to your plan. Remenber... Truth takes time.

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Japan Is Different

The Japanese market (EWJ) has low correlation to the U.S. market (SPY) and the Europe and Far East Index (EFA). It could be a good way to diversify away from a stock allocation that is primarily SPY and EFA. The table above shows the one year correlations (based on daily closing data) between various index ETFs.

The small capitalization Japan ETF (JSC) has very low correlation to SPY and EFA and negative correlation to most of the smaller markets shown. Interestingly, the Irish market (IRL) has correlations very similar to JSC. The Japanese and Irish markets have each just experienced a down year, so now might be the time to consider a small allocation to these markets.