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Ameteurs buying from Pros = Correction Imminent

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February 02, 2010 – Comments (3) | RELATED TICKERS: GE , BAC , CSCO

As people put their 401k and IRA money to work for the next month or two, it is clear that the professionals are selling into that short term strength.  Also, clear to me is that this has been going on for awhile, not in relation to IRA and 401k money, but as people felt they missed the run up, they got into the rebound rally late by buying from the professionals then too.

Insider selling is around a 20 year high the past quarter.

This can not be good for the average person who just puts their 401k money in on a schedule without much care to what they own.  In this case, dollar cost averaging is killing people, again.  While I encourage people to deposit money into their accounts on a schedule for budgetary reasons, I don't encourage buying based on the calendar.  I feel it's better to wait for opportunities with the money already in the account.  Here obviously, you must have the abililty and skill to price the market versus current and future business expectations.  Most people don't have that, hence why I have a job I suppose.

For those who got in late to the rally, I feel bad.  They bailed near the lows, as evidenced by last January's and February's selling (professional traders, insiders, good advisors and managers got out before year end for tax purposes in 2008, some of us before the crash even), and have in the last several months, bought back in high hoping (never a good strategy to figure in hope) to make it back to even

Folks, if you got into the stock market late, you need to get mostly out.  You're not going to make your money back on this rally.  Go to a market neutral position.  Own a good conservative global corporate bond fund.  Worry about return of principle rather than return on principle.

I have recently added Direxion Monthly S&P 500 Bear 2x Fund (DXSSX) and Small Cap Bear Fund (DXRSX).  As these are monthly funds, they need not be traded daily and weekly.  They can effectively be held for up to a few months without much lag due to expenses. 

While you wait, study the new decade's big trends: Water, Energy- especially alternative, Agriculture and Healthcare.  I also like private equity.  I own almost nothing else. 

Of note, emerging markets will start to consume, but that's probably more in the next decade.  China will clear its inventory build up mostly internally, but that won't help non-Chinese producers, so don't look to China to carry exports from the developed world.

3 Comments – Post Your Own

#1) On February 02, 2010 at 11:23 AM, outoffocus (23.18) wrote:

I agree.  I blogged about this phenomenon last year. Admittedly I was too early with my call but the concept is the same.  I put most of my retirement money in cash at "the top" a couple weeks ago.  Most of that money is going to stay in cash (with exception for a few commodities that are a bit oversold right now) until I feel comfortable that valuations are back down to sane levels.

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=187975&t=01000344307283955476

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#2) On February 02, 2010 at 11:34 AM, Option1307 (29.97) wrote:

As people put their 401k and IRA money to work for the next month or two, it is clear that the professionals are selling into that short term strength. 

Completely agree.

While you wait, study the new decade's big trends: Water, Energy- especially alternative, Agriculture and Healthcare. 

Water and agriculture look especially promising to me. Alternative energy will eventually take off sometime this decade likely, but who knows which direction that is going to go (wind, solar, etc. probably a combination).

Good write up, thanks!

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#3) On February 02, 2010 at 12:13 PM, kirkydu (94.54) wrote:

thx, I hope middle income folks trying to retire someday realize and act.

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