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Weekly Commentary for January 18, 2011

This is the point where things *could* get dicey.  So it’s really important you understand what may unfold in the near-term.

Some areas of the stock market — and some of the stocks, ETF’s and mutual funds I bought for you a few weeks or months ago — are getting extended.  Nothing wrong, just extended.  And what normally happens is, we go through a period where we see a pull back.

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Pull-Back: When the value of your stuff goes down.

And sometimes, when your stuff is going down, it can go down pretty fast. Like – in a few days, poof! Do not let this scare you, or stress you out.  So, what’s a normal pull back, you ask?  Five or six percent. Could even be ten percent.

Let’s put this in perspective, ok?  A 5% drop in your $10,000 mutual fund puts it at $9500.  A 5% drop in your $200,000 IRA puts it back to $190,000. A 5% drop in the Dow (about 600 points) puts it at 11000

Normal pullbacks are simply that: normal.

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Look, there are a lot of charts I like right now, but they are just getting extended. They need a breather.  It’s foolish to chase these extended charts (we say “up on stems”) because eventually those charts don’t stay extended forever.

See, either these charts pull back a bit and then resume their upward climb (what we are seeking), or they zoom upward and then just fall apart, like the New York Mets (it seems) every June. Like a supernova, a mirage.

What’s pulling back *right now* that still looks OK longer term?  Gold and all precious metals, China.  What *just* pulled back and now appears to be moving again?  Real estate. The pull back was so subtle some of you hardly even noticed this sector did nothing for a while.

What is due to pull back very soon?  International markets.  Technology (including internet)

What is *still* out of favor, no matter what day it is?  Bonds

Some of the big “hot buttons” for me in the market:  What’s happening with oil?  What is happening with the dollar?

When the dollar goes up, international markets and precious metals get a whacking. The dollar can set off these pull backs all by itself.

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