The Dow Jones Industrial Average is down 6% from its high of 10,725 on January 19th and down 3% since the beginning of the year. This means the Ithaca Experiment portfolio is up approximately 12% from the high on January 19th - a nice run, but nothing to get excited about because it is still down 34% from the initial investment in July of last year. I've been juked out before since the market began running in March of 2009, but think this is the long awaited correction I've been writing about. The question for you to consider is do you think this is a pause in a bull market run or that pull back in a bear market rally that I believe in? Because January was a down month, I think we have to revisit an earlier post I made in December that highlighted the January Barometer. The following quote is supplied by Wikipedia: "The January Barometer is the hypothesis that stock market performance in January predicts the performance of the rest of the year...Historically if the S&P 500 goes up in January, the trend will follow the rest of the year. Conversely if the S&P 500 falls in January, then it will fall for the rest of the year. Since 1969 this trend has been repeated 32 of a possible 39 times.".
I think the odds are in my favor that this will be a down year. The January Barometer just gives added ammunition to my thesis that the damage is not done yet and we will retest the lows of March 2009, if not go considerably lower once Uncle Sam's stimulus programs are finished. In fact, the January Barometer could be a near-term catalyst and accelerate the timeline for that 10% -20% correction I have been looking for because the smart money will start to get defensive if it isn't already. I don't mean to sound naive about my losses, they are real and they do bother me, but within 2-3 months, I could be back in the black. It doesn't take too long when you are leveraged as much as I am. So for the mean time, I will continue to put my holdings on ice and wait it out. To refresh your memory, the ETFs I currenlty own are ProShares Ultra Short S&P 500 (SDS) and the Direxion Small Cap Bear 3X Shares (TZA). I realize this portfolio is a high-wire act without a safety net, but as PIMCO's Mohamed El-Erian frequently says, the market is on a sugar high and once the rush wears off, there is no telling how far down it will go.