Monday, November 30, 2009

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 17

Year 3, Week 17 Major Position Changes

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

Cash: 82.9% (v 80.5% last week)
23 long bias: 12.5% (v 18.9% last week) 
4 short bias: 4.6% (v 0.6% last week) [includes 1 option position]

27 positions (vs 25 last week)

Weekly thoughts
The traditional Thanksgiving "up, up, and away" week was going swimmingly until Dubai had to rain on the party.  No worries - we've had a weekend to forget it and recall the warm textures that is the dollar carry trade... thankfully our memories are short (sarcasm).  We pointed out a week ago Friday that Monday's have been the magical day for the past 2 months with an uncanny ability to jump quite dramatically almost every Monday as a weekend full of assurances about free or nearly free money from central banks or government's worldwide get the animal spirits running.   Again, I will ask how many times we can rally on the EXACT same news... it is as if we are "shocked" each time one of these statements is uttered but see a few sentences earlier... our memories are short.   So while some pain was inflicted Friday, it's a new week and all dips are buying opportunities.  So it will be, until it is no longer. 

It's been a while since we looked at a bevy of charts in one review so let's circle the key ones.  Looking at the major indexes (I'll replace the Russell 1000 for our normal look at the S&P 500 since they mirror each other) it has been all about large caps of late, and that continues. 

The divergence in the small cap universe should be worrisome, but terms like "worry" are so February 2009, so the non confirmation has been dismissed.  

It has now become an almost religious belief that "the S&P 500 will rally to 1200 into year end".  Monday will mark the completion of 9th straight month up; I believe about 3 months ago a reader informed me 9 months was the record when I was quite in awe of 7 months straight.  So the consensus is there will be "no problem" doing 10 months because there is nothing big enough to worry about that the Federal Reserve cannot print away.  As I have been saying until blue in the face for months on end, consensus should never be so easy to play... but it continues to be.  Until it blows up... at which time people will smack themselves in the head saying "that was so obvious".  No, it's been obvious for a very long time... but obvious is on the longest winning streak in stock market memory.

Speaking of obvious, crowded trades.... perhaps the only chart that matters anymore:

We've cut back sharply on our "weak dollar" bets in the past week... we will never catch the top, or bottom - but if we can catch enough of the "middles" we can have a very nice investing life.  This move seems a bit long in the tooth, parabolic in fact... a $50 drop in gold Friday morning most likely scared out some stop losses - but by the end of the day the most crowded trade on Earth was back on.   Dubai be damned.   

Notice gold fell almost exactly to the 20 day moving average.... technical analysis is just tea leaves, eh?  Not when almost every computer on Earth is attuned to it.  Frankly we messed this one up as I sold out 90%+ of our gold / silver Wednesday... some frantic buying Friday morning was in order, and we missed the train.  If I had executed the 2nd half of the transaction (buy Friday), I'd be looking like Nostragoldus.  

2009 to gold was 2008 to oil... the hedgies playground.  Another divergence is the lack of follow through on oil; with the 'global economic rebound' oil should be moving in lockstep or at least at a trailing distance to gold.  Instead it appears (from these eyes) to be stalled, if not beginning early stages of a roll over. 

Still carrying the badges of wars with the market over the years, these divergences continue to place coal in my heart.  I remain in "prove me" mode - even the S&P 500 for all its outperformance has gone nowhere for 3 weeks.  

However the ball remains in the bulls' court as this consolidation period has occurred over all the major moving averages.  While the past 3 weeks are fine for people with shorter time frames than I, there has been no trend move and since we're focused on smaller and mid caps we're still in wait and see mode.  Selling at S&P 500 level 1011ish has been the 'right' thing to do the last 2 weeks, so we're waiting for that break out over that level.   More nimble players can buy any and every dip and at wait for the run to S&P 1111.  With a huge year in the bag and just weeks to go to close it out, I don't see the need to risk capital on the trade. We're index buyers on the break out... not before.

With the long weekend I had time to look at a lot more charts this weekend, and aside from large caps the winners of late (aside from 'weak dollar' or anything that rhymes with gold) have been healthcare and a bevy of retail stocks.  Without any real exposure to these latter 2 groups, I see why the market feels completely stalled and why stocks that dominate my watch lists are just trading back and forth in a smallish range yet the indexes are making progress the past month+.

Turning to the economic front, I believe we are at the stage of the rally where we have to ask "is good news bad news?"  The more good news, the more the timeline of a Fed rate hike could appear in the future.  At least in the market's view... in my view there is nothing on Earth that causes the Fed to raise rates in 2010.  But this market is so sensitive to every whisper that might ruin their precious dollar carry trade  [Sep 18, 2009: US Dollar Replaces Japanese Yen as "Carry Trade" Currency]  even one word being changed in the Federal Reserve statement now has the change to cause ruin.  That's the situation as we all stand on the same side of this boat... it's listing hard, but as long as we charge ahead; no one cares that our hair is in the water. So will the word smithing change next summer? That will be the focus the next 3-4 meeting with full wall to wall CNBC coverage.

It's another very busy week on the economic front with the monthly labor report Friday.  As always, this report is extremely flawed, prone to "sunny side up" reporting (which is scary, considering how bad the "official" figures are), but it's a market mover so we must respect that.  [Nov 6, 2009: Official Unemployment Rate Hits 10.2%; Reality Far Higher] Using "official" statistics, I'd expect this figure to start showing "0" job losses sometime in late winter to early spring.  Which regular readers will know means in reality we are still losing about 200K jobs a month.  Keep in mind the US needs to generate 125K jobs a month just to compensate for population growth.  So the question (see previous paragraph) is "0" bad for markets?  Recall the unemployment rate is a whole different animal as any American not seeking work for 4 weeks is not discouraged, but apparently "employed"... at least to the government.  So when word spreads through the internets (sic) that job "growth" is back to "0", the hordes may come out of hiding and back into the job market looking for jobs.  Which could sharply push up the unemployment rate (perversely).  And that rate is what Big Ben is focused on.  That's a very long term way of saying... how can one expect rate hikes in 2010?

Aside from the main event Friday, other economic events as follows:

  • Monday: Chicago PMI (purchasing managers index)
  • Tuesday (key day):  ISM Manufacturing, Construction Spending, Pending Home Sales
  • Wednesday: ADP employment (mostly useless), Beige Book
  • Thursday: Weekly unemployment claims, ISM Services (key), Chain store sales, and Ben Bernanke tells us not to worry as speculators, and he will continue to sacrifice the savers / seniors in society who wish for savings account rates in excess of 1%. 
  • Friday: Employment report and other Fed officials repeating what Ben says.

Again, don't worry about the data anymore... it's all mindless details.  The market has become all about 1 thing; starting at the US dollar and doing the exact opposite of what it does.  Check your IQ at the door... dumb is in. 

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