Act like Old Money
Research for Online Investors

by John Dalt

7/20/11

Can you ‘feel’ the market?  I like to think so.  The rally yesterday didn’t surprise me.  The President called a news conference to applaud a breakthrough in negotiations to raise the debt ceiling.  The market went wild.  Gold and silver fell.  Crude oil moved higher.  Stocks went on a run to have the biggest up day of the year.  Except…it was a lie.

What we really saw yesterday was a scam…that triggered short covering.  And the market shot higher.  Sure, Apple (AAPL) reported great sales and earnings…but they always do.  And always will until they don’t.  The only stupid thing about Apple’s earnings is our long term subscribers were stopped out on July 12th.  My stupid.

Yeah, and Google (GOOG) knocked ‘em dead.  Our SwingTrader subscribers closed a position on 6/29 at $492.  We made a nice profit, but I sure wished I would have held it three more weeks for another $100 per share!  My stupid.

The point of this is to remind us all of rule number two of our Fundamental Investment Truths.  “You will sell stocks that go up after you sell.”  You can read them anytime under Investor Resources at galtstock.com

If it causes you heart burn to sell and watch a stock trade higher, what can you do?  Rest comfortably; remember that dry powder is a rare commodity “when there is blood in the streets.”  I always think about the stories from yesteryear when the old men would dress up and go down to Wall Street when things seemed the darkest.  They would make their way to the brokerages leaning on their canes.  Floor Traders realized the bottom was close when the “old money” came out to buy stocks.

The scam yesterday was that the Senate ‘Group of Six’ didn’t even address raising the debt ceiling.  They don’t have a bill.  Nothing in their plan talked about raising the debt ceiling.  It was meant to satisfy the public that our government was going to think about cutting spending in the next year, so it would be ok to raise the debt ceiling now.

It is a purely political document that allows Senators to go home and beat their chest with the bipartisan deal they put together.  Over the next few months every change envisioned will be watered down if it involves cuts, and trumpeted if it changes the tax code to take more money out of our pocket in the name of fairness.  After all most of the liberals in Washington believe it is their money you are earning, you just get to keep some of it so you will keep running on the wheel of life.

The next two weeks will reveal the fallacy of the euphoria in the markets yesterday.  Be careful.  Watch your stops.  Sell if your stocks hit 52-week highs.  Sell covered calls.  Buy puts.  Protect yourself.

Eurozone leaders meet tomorrow in Brussels.  By the time our markets open, we should see headlines about the danger to the whole European economy if they don’t take bold action.  The problem is, the bolder their action the bigger the problem gets.

No, our problems are not behind us.  It is 104 degrees outside and the summer heat has two more months to run.  Even if everything is magically fixed here and abroad, do you really think we can get through August without the market going into a funk?  Wouldn’t you rather wait for the old men to come into the market?

If I am wrong, the worst you will do is protect yourself and sleep better at night.  That is pretty good advice.

The mailbag:
Dang…John…this covered call stuff works.---Buy, Sell, Hold subscriber J.P.

John’s reply:  I am a firm believer.  It is like being the bank in a casino.  We let a few win once in a while to keep them coming back.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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