Amazingly, through all this at 1550 the S&P500 is only 25 points away from the yearly and all time high; that is only 1.6% away. With M3 growth now hidden from us by the powers that be, but with various reports indicating its running at 15 % annualized (whew!) and the Fed still injecting liquidity weekly (I heard $14 or was it $17 billion last week, I cannot even keep track, it is happening so regularly now) - this is no surprise from a supply/demand dynamic (see 'Buybacks are all the Rage'). And hence why its hard to really be a perma bear on this market when basic economics 101 dictates the market seems destined to go higher - when more money chases limited assets.
So if the market (which I define as S&P500 in a broad brush instead of the Dow) makes new highs, you just have to forget any downside hedging for the near term and get extremely bullish again. I'll be watching this 1575 level closely.
So now just 24 hours later the S&P500 chart degraded very quickly, and we have a bearish close below the 50 day moving average (1514)... when just yesterday, it was poised to make a new all time high. Talk about bipolar. 1490 is where we held last week (twice) on the S&P 500 so thats another 1.1% down. Certainly a test of that level would be more than probable. The danger is if we break that level (we were oh so close last week), we get right back to the September lows of 1440s/1450 - thats another 4% down from here. Doesn't sound too bad, but 4% in an index usually means a lot more in individual names.
I keep coming back to the theme "eventually all the bad news matters". Even with the massive wave of supply of money the Fed injects weekly. At its basis stocks are based on earnings. We had a lot of weaker than expected US earnings projections this quarter. That will continue to next year. Stocks are based on earnings; yet stocks are near all time highs. None of it makes much sense, but it has confounded old school investors who do crazy things like care about fundamentals, for months. I still don't think downturns can last *too* long with so much money supply running through the system (where are you going to invest? bonds? yields there lower than they were 27 hours ago. real estate? hahah). But the downturns are shorter and more vicious. This is almost a carbon copy of the Friday 2 weeks ago, when we celebrated the 20th anniversary of Black Monday. And I did the same thing I did that day, I started blowing out some of the short ETF exposure into the emotional selling in the last 10 minutes of the day.
That said, we have a useless employment report (which gets revised 7x in the future) but it moves markets. So people will be nervous. I don't even know what the market "wants" anymore. Is a good employment number "good" for markets? That would mean the economy is too strong for the Fed to cut? Or is a bad employment number "good" for markets? That would mean the economy is degrading faster than the market anticipated. Who knows what the 'market gods' want, and the irony in it all is the number tomorrow is meaningless since it will get revised in the upcoming months to something else meaningless. What matters is what the companies tell us - their layoffs. Their retail sales. Their cost inflation. You can believe them.
So today I had a big stash of cash, and some good short ETF exposure - I sold some ETFs midday, and sold some more late in the day in the peak of the selloff. Despite all that, still took a 2% hit (still beat the S&P500) :). However the new stock from the Peabody Energy (BTU) spinoff does not appear in the portfolio (yet) so that will help when it shows up correctly ... otherwise it looks like I took a huge hit on Peabody Energy today without any offset for the new company spinoff I now own.
I still carry a decent amount of the short ETFs as insurance for further selling; about 7.5% of the fund excluding the UltraShort Oil - Gas ETF. If it were available I would of bought some UltraShort Foreign Markets as we closed the day since they will probably suffer overnight. But they have not launched yet. (and Marketocracy isn't the quickest at adding new stocks/ETFs to its choices to buy). I sold some positions that has strength today like Baidu.com and LDK Solar and some Mastercard near $200 - raised some more cash. I started some incremental buying - stocks that took big hits, but not in bulk.
Tomorrow the plan is to set a host of limit orders tonight on stocks I really like at prices that seem a bit ridiculous - near technical support. Much lower. And hope we get one of those 20 minute spikes down we seem to always get on selloffs where individual names drop to levels 5-7% below where they trade the rest of the day. And hopefully add more exposure that way. Still have $190K cash, so nearly 16% I'll see how we do at S&P 1490, and see how the agriculture/infrastructure/and market darling in tech do. But the wild card is the nonsense reaction to unemployment report tomorrow. It could swing the market either way (or have no effect) - cannot really plan for that. For the bull (and I mean that on many levels) to continue the markets needs to break through to new highs; until then I am staying neutral and open to swings in the market either way - for now we still appear in a trading range - until we clearly break down or up, its more of a traders market. Up/down/up/down. Bipolar.
Well tomorrow is the last day of my first official quarter as a fake mutual fund - unlike the first 3 days of this week which were (much needed) snoozers, it should be an interesting one. Time to make a shopping list....
