Stopped & Reversed! Long from 114

For those of you quick on the trigger and watching news, you would have jumped on board a lot sooner than my advice to cover all the way up at 114, but at this time we lost 0.90 on the short sale and are up 0.76 on the long right here.

With a Lehman buyout (takeover or take-under) potentially reducing the worry on Wall Street, this may create a blowoff peak here on this rally. Therefore, I advise exiting any longs in the following fashion.

1. Exit half at the opening on Friday.
2. Exit remaining half at 114.25 (114.76 last) on a stop.

This way we have a chance to participate on a further rally in the event that the reading of VIX as high as 26 has led to a decent medium-term bottom (fear induces long term bottoms, of course). I would assume that 112 would not be touched for at least a week or two if indeed this 26 reading of VIX has indeed put in a bottom.

What is most interesting to me here now is that the ratio of hard assets to paper asssets is down 50% in the past 28 trading days. I look at the ratio of Silver (SLV) to TBonds (TLT, 20 year bonds). The ratio has fallen from over 0.19 down to nearly 0.10 in literally 28 days. That's a CRASH, in my opinion. Oddly enough, from January this year to March, the ratio surged nearly 50% in exactly 28 days and put in its peak at 0.225. Perhaps there is something magical about 28 days, but I think this is an oddity. The drop is a result of many hedge funds and mutual funds liquidating positions en masse. The long-only ETF's that investors have crowded into have plunged in value this quarter to the tune of 25% or more. If you look at CGMFX, CGM Focus Fund run by Ken Heebner, one of the top performing mutual fund managers of all time, his fund peaked at the end of June and has fallen nearly 25%. His fund mirrors the action of most of the metals and mining shares, particularly FCX. See for yourselves. Even the best can get caught in the worst market conditions.

Stay tuned. Be well. Even though my timing on the last call was terrible, the strategy led to at least only a small loss at the moment.

Be well.