Ride the Dow Jones Past 8,000 with the Diamonds ETF (NYSE:DIA)
Mar 12th, 2009 | By Charles Delvalle | Category: Chart of the DayIf you’ve been following this column over the last month, you’ve likely made some money by shorting the Dow Jones Industrial Average.
If the VIX is rising, that means the Dow Jones should be falling, possibly breaking under 8,000 sometime in the next few weeks and head towards 7,000.
The play should be obvious. But I’m going to point it out anyways because I’m feeling saucy.
If the Dow Jones drops under 8,000 as the VIX spikes, buy a put on the Diamonds ETF (NYSE:DIA), which is an ETF that tracks the value of the Dow Jones Industrial Average.
As I write, the Dow is trading at 7,140. So if you sold puts on DIA, you’d have made 11% in about 40 days time.
Now is the time to get out of this trade (if you haven’t already).
Why?
On Feb 24, I talked about how “big round numbers” can be huge psychological turning points for the market. I said that 7,000 was one of those turning points because it market a ten-year long resistance line.
Well, 7,000 has been breached, as you can see from the chart above.
The Dow briefly flirted with 6,500 (which was also one of my targets) and then zoomed up right past 7,000 again.
This is pretty freaking bullish. Quite frankly, it gets me really agitated.
No, it’s not because I’ve shorted every stock in the world. It’s because there’s nothing to really get excited about.
It seems that the news, which is being seen as positive, really isn’t.
First, Citigroup says that for the first two months of the year, it made a profit. Man, that’s complete BS if I’ve ever heard it.
Then Bank of America said it won’t be accepting anymore TARP money.
If banks don’t have to count hundreds of billions in toxic asset write downs… of course they’d have a profit (so would most other banks).
So, why would these two banks not count write downs in their estimates?
Maybe mark-to-market accounting rules will be suspended this week. Then the banks won’t have to worry about write downs anymore.
From the Wall Street Journal…
After facing a barrage of criticism Thursday, the chairman of the Financial Accounting Standards Board told a U.S. House panel that he will work to expedite issuing guidance to companies on the application of mark-to-market rules.
The FASB said they’d have it done in three weeks.
If these rules get suspended or relaxed, this market is shooting higher on the back of the financials. Heck, it’s already shooting higher on the mere thought of these rules being relaxed.
Considering the financials were the sector that led the Dow Jones down to its recent lows, it should come as obvious that the financials will lead the Dow Jones higher in the weeks ahead.
Go long the Dow Jones by buying the Diamonds ETF (NYSE:DIA).
7,000 is your stop. But I have a feeling this market is pushing past 8,000 in the weeks ahead, if these rules are relaxed.
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Charles Delvalle is a self-taught market-timing professional and value analyst who's followed and invested in the market for the past ten years. He uses a unique combination of technical and fundamental research to pinpoint rapid profit opportunities with stocks and options.
Charles is also a staunch contrarian and takes pride in finding undervalued sectors and discovering undervalued, cash-rich companies. He frequently mocks government stupidities and points out the "inaccuracies (or lies, take your pick) that government reporting frequently dispels as "truth".
Hi Charles, great call. Now that the DOW has gotten to 8000, what's your opinion of where it's headed?
Is there a website where I can view the DOW figures for past days and weeks ?? Thank you