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Slusiewicz: Commodities and Cash Still King

by: Index Universe March 14, 2008 | about stocks: GLD / SPY / TIP / XES / XME    
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By Murray Coleman

Jerry Slusiewicz doesn't like cash. But the Newport Beach, Calif.-based advisor and portfolio manager (pictured at right) says he likes current market conditions even less.

"The market is still oversold, which leaves a lot of upside potential," said Slusiewicz. But the founder of Pacific Financial Planners says it's a little early to dive back into stocks.

He considers both technical and fundamental factors before investing. Despite the biggest rise in five years in the Dow Jones Industrial Average index on Tuesday, Slusiewicz is waiting for a confirmation that the current rally has legs.

But prior to that, he notes that the market was down seven out of the last eight days. "So the rally is just starting," Slusiewicz said. "On Wednesday, the major indexes were whipsawed. But on Thursday, we started way down and closed up."

He'd like to see markets show a definite follow. For example, SPDRs (AMEX: SPY) would need to get above $136 per share. It closed at $131.76 on Thursday. "That's the minimum level we'd feel comfortable with before re-applying cash into the markets," Slusiewicz said.

No matter how fast stocks recover, he says taking a disciplined and well-planned approach is important. "We're sitting on 60% cash, so we're going to wade into the market, probably a third at a time," Slusiewicz said.

All-Clear Signal

Based on technical analysis, he pinpoints $140 per share as the next attractive buy point for SPY. The third pricing level would be at $146. "That would signal SPY's all-clear signal," Slusiewicz said. "At that point, it'd be above the downtrend line that started on Oct. 11, 2007, which was basically at the peak of the market."

From the high point in October 2007 of 1576 on the S&P 500, the index fell nearly 20% through the end of last summer. "Everything at this stage revolves around credit and the ongoing financial crisis," Slusiewicz said.

But broad stock indexes remain above their 52-week lows. "The sentiment indicators suggest that stocks remain oversold," Slusiewicz said. "But while it's important to note, those are secondary indicators. So even though we're hopeful that not much downside remains in the market, we're not ready to bet the farm yet."

Besides cash, he's mainly investing in commodities. His biggest holding right now is streetTracks Gold Shares (NYSE: GLD). It hit an all-time high on Thursday and has run up 45% since Sept. 6, 2007. That's when GLD broke out at $68 per share, says Slusiewicz.

"With a gap up today, that's another positive sign," he said. "But I'm concerned that GLD could be poised for a pullback."

The ETF is trading 25% above its 200-day moving average. Gold has also breached the psychologically important $1,000-per-ounce level. "When it hits that level, people might want to take money off the table," Slusiewicz said.

But technically, GLD has minor support at $90 per share and major support at $80 a share, he adds. "So that's where if the rally fizzles, that's where it could fall," Slusiewicz said.

While he still thinks prospects for GLD remain strong long term, he observes that the last time the ETF underwent price consolidation, that pullback lasted 16 months. "So gold's rise hasn't been straight up," Slusiewicz said.

Although he isn't ready to trim his GLD positions, Slusiewicz has put stop-loss orders on GLD at $90.50.

He also owns SPDR S&P Metals & Mining ETF (AMEX: XME). "The global markets are still in a growth phase, and steel and copper haven't slowed either yet," Slusiewicz. "Pretty much anything you pull out of the ground these days is seeing strong demand."

Energy Disconnect

He also holds SPDR S&P Oil & Gas Equipment & Services (AMEX: XES). "It's interesting to see energy prices hitting new highs, but the energy stocks aren't," Slusiewicz said.

But equipment makers should do better long term than diversified oil producers, he added. "At these high prices, looking for alternatives and to dig deeper becomes more affordable," said Slusiewicz. "The money flow's going to continue to create more supply of oil."

He also recently added to his positions in iShares Lehman TIPS Bond (NYSE: TIP). Slusiewicz entered the ETF in October at $101.80 per share. It closed at $110.78 on Thursday. And it's paying about a 4.8% yield.

"We're importing inflation. The falling value of the dollar means it costs us more money to import goods and services," Slusiewicz said. "And I don't see that changing much."

TIP had a breakout on Feb. 28 at $109.40 per share on strong volume. It's up to around $110 now. Slusiewicz says its support is at $105 per share. "So we could see a pullback, but unlike GLD, that could fall to $80; TIP probably isn't positioned technically to fall that much," he said.

With tax rebates coming in May and the Fed likely dropping interest rates on Tuesday, Slusiewicz says a bottom in the broad stock market indexes appears close. "But right now, it pays to be patient," he said. "Very soon, we're expecting to see a rally that could push stocks 16%-20% higher over an extended period."

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This article has 6 comments:

  •  
    Mar 14 02:28 PM
    While I agree with Slusiewicz when he says that "it pays to be patient," I'm not so sure about the 16-20% rally he's expecting to see in the broader market. What's the fundamental change that's going to justify grinding upward? It seems increasingly unlikely that we'll get a string of economic data to buoy stocks, and the Fed has lost the power to raise hopes with a magical rate cut or a new T-acronym.
    Reply
  •  
    Mar 14 05:16 PM
    I love these guys....I'm gonna wait until it goes UP to buy.

    So, you are going to buy...just gonna wait until you can get less for your money.

    Yeah. Please manage my funds.
    Reply
  •  
    Mar 15 12:47 AM
    In a bear market, you should short at the 150 day moving average, not buy into it.
    Reply
  •  
    Mar 15 12:39 PM
    The problem with the whole analysis is that the entire market has been almost completely levitated by the PPT since the techcrash of 2000 (which was itself moderated by the PPT or would have been at least twice as bad). Remove the manipulation ("management"... if you like sugarcoating it) by the PPT (sugarcoated-the President's Group on Working Markets) and the market has already crashed. The Fed has been creating money (out of nothing) at an ever-increasing rate since 2002...it now approaches 20%/yr
    (which defines "hyperinflationar...

    You should have known that's what they were going to do...it's the only reason they stopped publishing M3 back in March 2006 (they claimed it was b/c of "costs" of publishing it which as i recall were around $10M/yr...WOW!!!! what a ton of money, esp when they turn around over a weekend and dump $200BILLION with a "B" to bail out their banker buddies!!!$@#$$%# and then do the same thing a week or two later!!!!!!!

    The point is that everything you're looking at when you look at for instance the DOW is a lie...it's a manipulated chart...and all the TA that "informs" so many investors is also a manipulated TA, since all TA takes for its data the past...and if the past is manipulated, then the future is based on manipulated data.

    Get out of the stock market, except perhaps for commodities, and there, perhaps limited to gold and silver miners, maybe oil and NG companies. But more important is to know where your wealth is. If it's all in the dollar and dollar-denominated investments, you're in a heap o' trouble. You've got to be earning at least 20%/year just to break even, but that doesn't take into consideration the fact that to continue their Ponzi scheme, the Fed is going to just have to inflate at higher and higher rates. Make sure you trade in at least a portion of your worthless paper "money" for REAL money...silver and gold. AS hard as the anti-gold Cartel of the Fed and Western CBs has worked (and in large part succeeded) in convincing the sheeple people of the US...and actually of most of the Western World...that gold and silver are only good for making pretty jewelry and otherwise are useless, inedible, out-of-date "barbarous relics," they remain the premier currencies of the world for all known time, and all fiat currency frauds have ended badly with gold and silver re-taking their rightful places. We're getting near folks...got silver?...got gold?

    jt
    Reply
  •  
    Mar 15 01:41 PM
    All the bitter and twisted words coming out on these sites regarding the "manipulation&quo... of the markets and the rubbish about working groups etc.

    True or otherwise there is only one thing that matters in these markets: Making money. Either you are, or your not. Chances are if you're here having a whinge then you're in the latter group and should go and find a more satisfying day job.

    The markets are what they are, use them to make money, use them to feed your addiction (then complain when you're beaten later) or leave them to the professionals.

    David
    Reply
  •  
    Mar 16 04:15 PM
    David: Are you talking about the "professionals&qu... at Bear Stearns or Countrywide? How about Mr. Angelo Mozzillo himself? Boy, these guys really know what they're doing, don't they?
    Reply
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