Wednesday, April 9, 2008

Back to Critical Technical Juncture on S&P 500

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As I wrote yesterday [Getting more Conservative - Waiting for Direction] we're in a narrow range, S&P 1350 being the floor - for the bull party of denial to continue we need to see a bounce off this level. Would the bear of been so cruel to draw in the Kool Aid drinkers only to crush them? If 2001-2002 is any example - yes. Even more emotionally awful for bulls is the fact that last week's breakout actually was the first of the year that created a higher high - oh the market; she can be so cruel.

As I stated I am up to 30% in cash, and if/when we break 1350 I'll be adding materially to short exposure. Even if we bounce here off 1350 (which would be expected since the Invisible Hand is sniffing around), we need to start seeing some volume - this market is just listless after that huge move last Tuesday. It is one thing to hold up in the face of continued bad news, but without drawing in new buyers that can only last so long. Maybe the January low is our bottom - with historic government intervention anything is possible - this market in my view should be substantially lower if true reality was being reflected. But remember, as I state almost every week ALL assets will be inflated over and above where they should be, including equities when paper dollars are dropped from the skies at historic rates. That's what an avalanche of liquidity will do - inflate everything. So before we smugly cheer the market's "resiliance" let's remember 8% returns in a 12% inflationary environment means we've lost yet again in real terms. But since 12% inflation magically turns in 3% once the government reports are done with their "magic" we believe we have won. Nanny states are comforting like that...

Further it's been well over 5 days since an article has come out proclaiming the death of commodities so it's long overdue that these stocks sell off 20% as people scream fire in the theater, and the fund takes a 5% hit :) It's almost becoming predictable... so I'm warning you in advance. When this happens, we'll take the hit, I'll be buying while others are crying, the fund performance will stink that week (or 2 weeks), and a month later we'll be selling to the same people who were crying.... when they buy the stocks from us at +25% in price. And keep repeating.

As we type the S&P is at 1355 and I continue to hang out in the Swiss Alps (neutral territory) for the fund...

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