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The Time to Buy Is Near...By Jeff ClarkWednesday, August 15, 2007 Investors now finally understand why there's a disclaimer at the bottom of their money-market-fund statements. It's in small print and it typically reads something like…
"An investment in this fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund."
Sentinel Management Group told investors in its money market fund (which isn't really a money market fund but rather an overnight cash depository for commodity and currency traders), "We cannot meet any significant redemption requests without selling securities at deep discounts to their fair values and therefore causing unnecessary losses to clients."
Sentinel manages only about $1.5 billion, so it's a miniscule player in the credit game. But when this story hit the news wires, rumors of a major money-market-fund default spread like syphilis in a Manila nightclub.
Money market funds at Fidelity, Vanguard, and Schwab were all rumored to be on the ropes and in danger of dropping below $1.00 net asset value. CNBC ran a story about how to check the holdings in your money market fund. And investors started to panic…
The market dropped 200 points. Any stock that had anything at all to do with finance or lending got smacked. And it started to look like a good old-fashioned run on the banks.
And that means the end is near… the end of the correction, that is.
Stocks typically bottom amidst a flurry of bad news and rumors. What's that saying about buying when there's blood in the street?
For the past few weeks I've concentrated on the idea that this is an A-B-C correction. Last Thursday we started the "C" wave, which is supposed to take out the "A" wave lows.
We took out those lows at the close yesterday when the S&P 500 closed at 1,426.55. The "A" wave low was 1,427.40.
I'm not suggesting that the selling is over just yet. In fact, my downside target for the S&P 500 remains around the 1,375 level.
But now is the time to get out your "wish list" and make a note of the stocks you want to buy and the prices you're willing to pay – because we are very close to the end.
Two of my favorite momentum indicators are the Bullish Percent Index and the Summation Index for the NASDAQ Composite. These are excellent gauges of overbought and oversold conditions. And, if you take a look at the following charts, you'll notice that both indicators are at levels from which the market has bottomed in the past…
Of course, this doesn't mean that the market can't fall further from here. But, it's a pretty good bet that the bulk of the damage is done. And, if you've been waiting to put some money to work in the market, then now is definitely a better time than last month.
Best regards and good trading,
Jeff Clark
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China continues to climb during the sell off... Morgan Stanley China fund hits new high. Up 66% year-to-date.
UltraShort Consumer Services ETF hits new high... profits from falling stocks... Stein Mart, Timberland, Fred’s, Tuesday Morning, Sharper Image, and Foot Locker hit lows.
Investment banks UBS and Morgan Stanley fall to 52-week lows.
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