Sunday, November 1, 2009

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 13

Year 3, Week 13 Major Position Changes

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

Cash: 85.9% (v 86.5% last week)
21 long bias: 11.8% (v 10.5% last week)
3 short bias: 2.3% (v 3.5% last week)

24 positions (vs 23 last week)

Weekly thoughts
Last week we started our weekly summary off with "Call me Cash.... James Cash.".  This week? See last week.  We've properly exited the market as individual names have broken down one at a time, even as the larger indexes were holding up [Indexes Do not Tell Tale of Damage]... and then finally the indexes broke.   Now we have the potential for quite a sea change brewing; quite fascinating how quickly things can change.  Here is the chart we posted just 7 days ago:

Obviously we've broken through all the cute green arrows; and with that about 43 S&P points - or 4%.  About 7 sessions earlier came the first shot across the bow when the S&P gave up 1.5% in the last 45 minutes of trading - that was reversal #1.  This past Monday we suffered another reversal of similar stature but mid day instead of end of day  [Oct 26, 2009: Holy Weird Action Batman] but as the national ethos has become "buy the dip, any dip... or risk looking like a dip" we opined whether we would just experience another surreal 180 degree reversal back up after breaking support; a very rare occurrence until the past 3 months [Oct 26, 2009: A Real Breakdown or a Trap of the Bears? Do We Rally Sharply on Wednesday?]  To a market that has been so cruel to bears, finally the bulls experienced a series of "Punk'd!" moments.  But not before one last face wash to bears ... the sell off Wednesday, which took the S&P 500 below the 50 day moving average... which once again should of been bearish, was forgotten Thursday at 8:31 AM (GDP) as the market reversed in premarket and rallied all day.  Bears' shoulders sunk, and smug bulls said "here we go again".  But it was not to be, as we experienced yet another intraday reversal Friday that just built on itself - and we ended the week with yet another breakdown below the 50 day.  So here we are:

With such a quick selloff, one would expect some sort of buying pressure in the first half of the week.  If this indeed is something for bears to build on, that rally should be sold / shorted into and a real bear trend begins.  This would seem the probable path, but the news events of the week will make things much more difficult.  On the docket, a Fed meeting Wednesday and monthly labor report Friday. So we face more risk of 180 degree changes in directions that disrupt charts - just as we saw Thursday with GDP premarket  Not a time to be too cute.  Technically the "box" we're looking at is 1047/1048 on the top side (20 day moving average) and 1020 on the bottom.  A break of 1020 would indicate the first "lower low" on the charts in many moons, leading to the potential to turn bulls into turkeys.  11 months of the year - not an issue; in November however - not a great position to be in. *gobble gobble*

As for the Fed meeting, in a display of how silly the casino has become all eyes will be on 1 phrase. "extended period" as in, we are happy to provide free money to speculators and our banking oligarchy for an extended period - rather than anything shorter than an extended period.
  • But now senior officials are starting to mull changing the statement in a way that would soften this guidance.
  • Strictly speaking, the “extended period” guidance is not a commitment but a forecast: it spells out what the Fed expects to do based on current information, rather than what it will do in all circumstances.
  • ....policymakers worry that changing the “extended period” language could be misinterpreted as a signal that rate rises are imminent when they are not.
  • Another is that policymakers might retain the basic structure of its guidance but progressively water it down over time, as they did in 2003 and 2004. For instance, the Fed could start by moving back from “extended period” to the original phrase “some time”. The Fed is likely to prepare the ground for a statement change through speeches or testimony first.
As I've said many times, Bernanke is a history buff - he will over stimulate to a degree that makes Greenspan blush before pulling the plug too early.  Much of this nascent dollar jump is people believing there might be some sort of change in signal, with ideas that rates will tighten summer 2010.  My view is there are incredible structural (not cyclical) changes happening to the economy, overlaid with the a credit disaster and cyclical tsunami and easy money will be readily available for far longer than the consensus.  I still look for early 2011 until any rate hikes and even then I expect Greenspan like "easy money" for a long time so the US can create new bubbles that it will call "growth" and "job creation".  Without allowing the market to ever clear, we will continue down this same path over and over again with no one honest enough to talk about root causes.  Hence I believe the potential exists for a rally Wednesday circa 2:15 PM because the Fed bows to the markets and never wants to "upset it".  If language were to be changed one would see Fed minions telegraphing it in speeches in my opinion; we have not seen that so I'd be shocked to see those 2 words changed.  But again, it shows you how inane the "game" has become... going from extended period to some time might mean the difference between 5% on the S&P 500 and billions upon billions of market capitalization.

Of course we are still in the heart of earnings season, but all things will take a back seat to getting a clear signal that our central bank will provide a punch bowl for ever so longer, followed by Friday's (useless) labor report.  Everything else this week will just be details.  ISM Manufacturing , Construction Spending, and Pending Home Sals are out Monday morning; Factory Orders Tuesday, ISM Services Wednesday, and Consumer Credit Friday.  But the oxygen will be sucked out of the room by Fed & jobs.  Keep an eye on the dollar at all times as all the world has simply become an inverse dollar trade...

We will also be watching the charts in the areas we highlighted Thursday morning.  [What We've Done, What We're Doing, What We're Looking At]

As for the portfolio, per our over riding strategy we've exited position after position as they have broken key support levels - Wednesday morning was particularly telling in how many stocks we were stopped out of.  When an oversold bounce does occur, it will be tempting to think this is all over as stocks surge (surely many 8 to 10% in 1 session as we saw last Thursday) but unless your time frame is extremely short, that could be quite the trap.  So with key news events, a market which has suddenly turned far more volatile, and some key technical levels in all directions - only the most agile should be partaking heavily.  For most, it is better to understand this is a marathon and the direction of the next path will be far clearer in due time.  I will note all I hear on the internets (sic) is what a buying opportunity this is, and another 2-3% and we should be 'good to go' for the year end rally.  Perhaps it is just that easy but I rarely like to be hanging out with the consensus for too long.

For the portfolio we remain in another week of extreme cash, allowing ourselves to dance at the party on clear breaks in the chart, but we don't stay long.  With the 50 day moving average broken both on the indexes and individual stocks we'd be looking for some more core equity ideas on the short side - which we can easily stop out of if the market goes against us.  On the long side we are down to 5-6 material long positions which will be monitored to cull, if the market continues to degrade.  We said last Monday "the next 48 hours should be interesting", and I expect another week of fireworks - much of our capital will be snug under the mattress until things become more clear.  We continue to believe a mirage, Ponzi like economy has been brought to us by our generous leaders (political and central banker) but as always it does not matter until it matters.  I always get a kick when the same news that is ignored for months on end suddenly becomes "news worthy" and "a reason to sell" - I look forward to seeing another period like this in the not to distant future.

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