Friday, August 29, 2008

Bookkeeping: Cutting Back Research in Motion (RIMM)

I pointed out the non confirmation yesterday in the tech leadership stocks - it was very strange on a big up day. Today, I'm cutting back Research in Motion (RIMM) - simply sticking to our laid out plan to cut anything that breaks support - RIMM just fell below its 50 day moving average so it's going down from 1.0% allocation to 0.1% stake. This is yet another ominous "double top" formation. Frankly this is a chart I'd be shorting with a stop loss over $126... $115 seems almost destined.

Right or wrong, this pattern of respecting charts when they break down, and cutting back, is taking us more and more out of the market as chart after chart we watch breaks down. On "up days" these stocks rebound but most of the time only to resistance before falling back. I continue to scratch my head at the general indexes holding up when I see so much weakness in individual charts.

As an aside as we wrote yesterday this market is now at the top of its range so as I wrote

Now we're back at the top of our recent range - the pattern would dictate to go short tomorrow or Tuesday. Then cover 3 days later, and go long. Rinse. Repeat. Continue until this market actually does something.

We continue to churn. I went through and charted about 90% of the stocks yesterday that drove the S&P 500 higher. [20% of the S&P 500 Gained 3%+ Today] All but 10 or so are simply terrible charts that were doing oversold bounces. Nothing to be excited about - looks like short squeezes to me. But shows again you buy weakness and sell into strength in this market. Riding strength is simply not working in the vast majority of cases.

Today we have economic reports that show despite rebate checks consumer spending is falling off a cliff, and inflation persists. But not to worry, bad news is backwards looking. Good news means a "turn is coming". That's called rationalization. I guess we are still in denial. Kool Aid. The US consumer continues to get poorer by the month. Less people working. More people working less hours. Access to credit lines of all sorts being ripped away. Someone please call China - we need more money to send to consumers to create an illusion of strength so we can get this market going up.
  • Personal incomes plunged in July while consumer spending slowed significantly as the impact of billions of dollars in government rebate checks began to wane.
  • The Commerce Department reported Friday that personal incomes fell by 0.7 percent in July, the biggest drop in nearly three years and a far larger decline than the 0.1 percent decrease analysts expected.
  • Consumer spending edged up a modest 0.2 percent, in line with expectations, but far below June's 0.6 percent rise. When the impact of rising prices was factored in, spending actually dropped by 0.4 percent in July, the weakest showing for inflation-adjusted spending in more than four years. (keep in mind this is happening with rebate checks sent out mostly in May - June; what environment will await us without "free money"?)
  • A gauge of inflation closely watched by the Federal Reserve remained elevated in July, rising by 0.6 percent. (strange considering when crude falls 20% I am told all inflation will disappear and the consumer will be "back") Over the past 12 months, this inflation gauge tied to consumer spending was up 4.5 percent, the biggest year-over-year increase in more than 17 years
Long Research in Motion in fund; no personal position

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