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Dos Hombres: Sell-Off Special

Fin - Breakout - US

With the S&P 500 spelunking lower after a torrid two-year pace, this is either a good opportunity to add to a portfolio or to reap profits made over the past two years. Matt Nesto and I addressed the broader tape and options on what to do now in this special sell-off edition of Dos Hombres.

Nesto observed that the oft-discussed double top in the 1,340 - 1,350 range on the S&P500 continues to take shape, marking firm resistance even in the event of a rally. According to Hoyle, the leaders in a rally are the losers in the subsequent sell-off; this is exactly what we're seeing today. Energy, materials, and industrials are seeing the most marked selling. Commodity leaders such as oil (3%) and wheat (4%) are getting taken to the woodshed as of midday Wednesday.

What's looking good? Defensive, staples and left-for-dead retail are hanging in well on a relative basis. Given the lack of fundamental appeal of those sectors and their performance of late, it may be way too early to start loading the boat with last year's losers.

For my part, I'm still doing my best to get investors to take a hard look in the mirror in order to determine their goals and pain threshold before doing much of anything. Specifically, ask yourself what you'd do if your book was down 20% from recent highs. Be honest and listen to your inner voice, not what you'd share if you were trying to impress friends (or, say, a comment section in Breakout).

This isn't a hypothetical exercise. I suggest you should really sit down someplace alone and look through your portfolio. Could you keep your cool if you woke up tomorrow and the S&P 500 was trading where it started at the beginning of the year? How about if the oil/ gold/ silver gains you've already spent in your head were suddenly gone? Would you kick yourself in your no-longer-gold-plated arse for being a pig or would you celebrate the chance to finally put that cash you've been holding back to work and buy the dip?

I see S&P support at around 1,250. That's where we started the year and it's about the levels we reached in the March tsunami sell-off. I don't think crude has much support until $100 a barrel. Consistent with what I said in last week's Purple Crayon segment, I'd buy more of each if and when we get there. But that's only because I've taken some profits along the way and I know precisely what I'd be doing if my buys at those levels went south (I'd admit defeat, sell, and sit on the sidelines until I had a better idea).

But then neither Nesto nor I are here to tell you what to do. We're not going to be in the room with you making buy or sell decisions on the day volatility finally re-emerges. We're just here to tell you what we see and let you know how we'd play it.

So now you know. Of course, our opinions and a metro card will get you on a NY subway. There's only one question that should matter: What would you do? Ask yourself before the market does the asking for you. And send your comments to breakoutcrew@yahoo.com.