Monday, June 15, 2009

Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 45

Year 2, Week 45 Major Position Changes

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 58.0% (vs 55.3% last week)
30 long bias: 38.2% (vs 35.4% last week)
7 short bias: 3.8% (vs 9.3% last week)

37 positions (vs 37 last week)

Weekly thoughts
Let's start with the squiggly lines which seems all to matter as we enjoy our 130 trailing PE market (we only look forward here at FMMF!). From an "exponential" point of view we're stuck in our triangle between the 20 day moving average which has provided support in this rally since the 2nd week of March, and the 200 day which the market has hit its head against for a remarkable 10 days in a row. The former number is now about S&P 925, and the latter in the low 940s. As they quickly converge I expect a meaningful move.

I think buyers emerge over the 200 day and sellers below the 20 day, as I've been saying for a few weeks.* Also as I've been saying this is one long winded rally, the likes of which I can only compare to one other since I've been around. And to finish as I've been saying... while I've been forced to play the 'reflation' trade to some degree - this is one crowded trade. When it reverses I expect the pain to be hard and fast. As that happens expect rebounds in the "dollar is weak, bond is weak" trades. At least for the short term.

* if you use simple moving averages, your chart is going to look very different than mine.

Folks this move is so egregious even bulls are anxious for some "healthy pullback"... but greed is winning out. What greed? The greed of losing a ton of money in the downturn, and then missing the "new bull market". While we escaped the whole "losing a lot of money in the downturn" the past nearly 2 years, and hence don't have yawning chasms of losses to make up, it is still unfortunate to have missed the 2nd half of this rally in the past 6 weeks. And while we look around the landscape we have to realize many peers after treating shareholders so poorly in 2008 and the first few months of 2009 cannot risk being left behind on a real move up, so they are restless and anxious to be involved. So a lot of counter trends that have little to do with fundamentals, and a lot to do with crowd psychology.

For the news, I'll spare you. Aside from government transfer payments of the likes we've never seen before, the U.S. economy is in bad shape. All we've done is gone from "worst since Great Depression levels" and "revived" to "bad like late 70s, early 80s". We disputed all the thesis of "recession" proof in many posts in latter 2007 and early 2008 - NASCAR recession proof? We said no. Las Vegas recession proof? We said no. High end affluent retailers recession proof? We said no. We were proven correct. Readers it is so bad that even one thing I thought was recession proof - video games - are suffering starkly. (and bulls will say, tough comparison period - and 2nd derivative improvement blah blah blah) Look gamers play at almost any price - when they have to cut back, it's serious.
  • Sales of video game software fell for the third straight month in May, as tough comparisons and the slowing economy continued to weigh on the sector.
  • Sales of video-game software in the U.S. slipped to $448.9 million during the month of May -- down 17% from the same period last year. Hardware sales fell 30% to come in at $302.5 million for the month.
But I don't want anyone to fear - the Federal Reserve is here and has deemed all video game makers too big to fail, and will support them. Uncle Tim agrees. So don't you worry - our future of being couch potatoes is secure - "they" don't want us to stop being distracted from what "they" are doing... our games will go on!

China won't save the world - it's sand blasting money through the system simply to save itself - and even then imports are down 25% year over year (exports worse). But I can talk facts all day... means little as I wrote in [Apr 3, 2009: The Current (and Coming) Disassociation Between Economics and Stock Markets] I only wish I had listened to my own advice and drank green shoots myself to a far greater degree.

This week we have Research in Motion (RIMM) reporting - like many charts this is extremely extended after a monstrous run and while "not chasing" has been "wrong", I am not going to pile in ahead of an earnings report. In fact Apple (AAPL) pulled back Friday to a support and I was going to add that back to the portfolio but then remembered RIMM's earnings coming, and it will affect (fairly or not) Apple. NASDAQ has led us up and if you are a NASDAQ fan all you need to know is RIMM, AAPL, GOOG, and then the ETF SMH (semiconductors). If those begin to break down the NASDAQ goes too.

Other indexes like transports and the CRB (commodities) are at key 200 day moving averages. Look at that big red rejection on huge volume Friday. (Danger Will Robinson)

While I lifted shorts away for the upteempth week and keep telling myself "this is the week my covering will mean capitulation - and the market will finally go down", I've been saying that for well over a month now. Maybe this will be the week? But don't take my positioning as bullishness, cash is the highest I can ever remember (basically my normal short exposure is now sitting in cash so the "urgent buyer" does not smack me upside the head) and I am just pulled back to stop taking the pain from rampaging lemmings. So we wait to see which way this resolves - the triangle is narrowing and complacency (in my judgement) is high. Bulls either believe the market is destined for higher levels or will be set for that conclusion after a cute little 5-10% drop off that allows them to get "in".

It's never so easy in the market and in the old days I'd say easy things never work. But until "urgent buyer who cannot wait until 9:31AM to buy so as to not push futures up 5-7 points premarket" stops showing up 8 out of 10 days, or "urgent buyer who loves to buy all at once, in the 3:30 PM 30 minute set" is defeated we have tens of billions apparently ready to buy this market at all opportune times - i.e. every time the charts are about to go bad. Only 1 entity has this much money and I always call him "urgent buyer" because if any real institution was buying like this on their own behalf and in their financial self interest, they would fire the trader(s) for getting such terrible prices by buying in huge swathes that distort prices. But on the other hand, when you want to distort prices it's an excellent way to purchase futures.

So as with almost everything in the US economy itself in our new era, the market is the battle of free market versus "visible hands". And away we go...

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