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Tuesday, January 5, 2010

Morning Market Report

Last March, the Dow was at 6700 and some, like me, thought it would go even lower. (I predicted 5000) It's now pushing 10,600. So, today is a good day for a quick lesson in dollar cost averaging.

Dollar cost averaging is a timing strategy of investing equal dollar amounts regularly and periodically over specific time periods (such as $100 monthly) in a particular investment or portfolio. By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.[1]

If you had bought at the top, you'd still be down. If, over the last year and a half, you had been dollar cost averaging, you'd be way up. It'sa common strategy for mutual fund investors. If you were increasing your portfolio monthly, you'd be taking advantage of the volatility. I'm sure that dollar cost averaging is not a new concept but the last year and a half is a real life example of why it works.

The Dow had a monster day yesterday. It was up nearly 170 points. Things were looking all right this morning as well until the most recent housing numbers came out.

Pending sales of previously owned U.S. homes fell more than expected in November because of the end of a rush to beat the initial expiration of a popular tax credit, a survey showed on Tuesday.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in November, dropped 16 percent to 96.0, after rising for nine straight months.

Analysts polled by Reuters had forecast pending home sales, which lead existing home sales by one to two months, falling 2 percent in November after rising to 114.3 in October.

If you've been reading this column for a while, you should see that there's a lot of economic numbers. Trying to make sense of all of them is impossible, but markets tend to respond to most of them in the short term.

Bonds are slightly better this morning. The ten year is down to 3.77%. The yield spread between the two and ten year is at 2.75%, up slightly. The three month t bill is slightly better as well at .061%. Crude oil is at $81.76. That's up slightly today and way up over the last couple weeks. Gold is also climbing again. It's now at $1124 an ounce. That's up another $7 an ounce and about $50 an ounce in the last week and a half. It's still about a $100 an ounce off its all time highs set in early December.

Markets in the Far East and Europe are somewhat mixed but more up than down. The Hang Seng in China had a monster day up 2.06%. Remember that China reported strong manufacturing numbers yesterday and so this may be a response to that. The NIKKEI in Japan was up .25% and the Straits Time Index in Singapore was up .86%. The broader Chinese index was up 1.18%. In Europe, the FTSE in London was up .52%, the DAX is down .08%, and the Spanish index is up .61%.

The Dollar is slightly weaker this morning. It's about even against the Euro, down .11%, up .47% against the British Pound but way down by 1.03% against the Japanese Yen.

Finally, there's breaking news. Ford is gaining ahead of their quarterly numbers. The stock is up five percent. That could mean all sorts of things so we'll wait and see what their numbers are.

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