Sunday, February 28, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 30

Year 3, Week 30 Major Position Changes

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

Cash: 80.6% (v 70.3% last week)
18 long bias: 12.1% (v 24.0% last week)
5 short bias: 7.3% (v 5.7% last week) [Includes 2 'long dollar' positions, 1 option related]

23 positions (vs 25 last week)

Weekly thoughts
While the last week brought quite a bit of volatility day to day, there was almost no net movement.  The "stick save" (Canada 3-USA 2) Thursday after large morning losses threatened to bring damage to the technicals of the indexes, was epic with big losses stymied by yet another "rally out of nowhere".  The best explanation I have found so far are "rumors" of Apple splitting shares (almost laughable to cause such a rally) or a Greek rescue?  As for the latter ... huh?  Didn't we rally 2 weeks ago on the same thing?

In 6 months I wonder if we'll look back into this week as one that foreshadowed the "recovery" (government sponsored) as beginning to run out of speed.  Many economic data points came in worse than expected but the market is currently happy to ignore it or explain the recovery as "choppy".   Both existing (more important) and new home sales were worse than expected.  Consumer confidence (something I put little stake in but the market worships) faltered.  Weekly jobless claims jumped almost back to half a million, and the only real positive was a slight uptick revision in GDP for Q4 and some regional purchasing managers indexes which usually don't move markets.  With all that, all it took was Ben Bernanke saying both Wednesday and Thursday "I am here to give you free money for as long as I wish" and speculators were happy to brush off reality on the ground.  It is what it is - and as we always say, it only matters when it matters.

Whatever the news on the ground, it really doesn't participants only care about free money and the continuance of a global moral hazard routine.  (in this case praying for bailouts for Greece)  We now have a goldilocks economy (circa Kuldow 2006) where the economy is of course recovering but certainly not at a pace that emergency interest rates or liquidity measures can be reversed.  A very convenient situation indeed.

As for the indexes we are at the top end of a recent range... and "Magical Monday" approaches (Mondays have been the nexus of almost the entire rally of the past 6 months).  Further, Chinese PMI comes out overnight and almost every Chinese PMI report for a year has been enough to get a wonderful gap up in US markets - so we'll see if it happens yet again tomorrow.  Since markets are having such a hard time breaking to the upside during normal hours, the course of action for the past year has been to juice them overnight.... this would be yet another perfect opportunity.  As for those indexes, we have an interesting situation in both the S&P 500 and NASDAQ when we compare 'exponential' moving averages versus 'simple' (neither is "right" or "wrong" to use, and usually there is not much of a difference).  The [simple] charts below will show you a nice premarket surge can get the indexes to where they "need to be" in the simple moving averages.....

In (my) exponential world - things look more solid, but it seems the simple moving averages are dominating things right now so I am respecting that.

I thought (and have stated a few times last week) we'd have more downside ahead but the moment I said it Wednesday Bernanke said easy money! and the market surged 1% in 30 minutes.  Then Thursday we had the mystery rally - so once more it is nearly impossible to bet against a market for long that acts like that... too easy to take extreme pain.  Hence, I have not been actively shorting indexes much but using the US dollar which has been working out well for us.  The dollar is actually coming into support after 3 down days, so the next few sessions will be interesting as the 20 day moving average has not been penetrated in a month and a half...

As for the indexes S&P 1109 is the pivot point and NASDAQ 2240-2250 would be the same.  I'd expect the computers to come rolling in if these levels are broken to the upside, and if I know that - the figures who enjoy piling into futures at opportune times know how to lead the computers in Pied Piper strategy as well.   If the market cannot jump over these resistance levels, even with the help of Magical Mondays, and surges of SPY buying - then the obvious path will indeed be down.  Unless Bernanke breaks in on live CNBC coverage to whisper "easy money".   We are also waiting for the official news of bailout of Greece which thus far has been nothing more than a kick the can approach with vague commentary such as "we support Greece". 

Due to inability to access data for part of the last week, I culled some positions (along with taking profits Monday on some winners and a SPY call position) but will be looking to run down the cash exposure by 10-20% relatively quickly.... in which direction that money will go, will be dependent on what happens early in the week.  Other than some early week sales to lock in profits, Braskem (BAK) was closed out, and Seagate Technology (STX) was re-expanded when it fell back Thursday morning.  If the market doesn't begin another "student body left" run if and when S&P 1109 is cleared, then I'd like to begin building a more balanced portfolio of long and short individual positions, otherwise we'll just concentrate on adding to some very nice charts on the long side.

Earnings season is more or less over except for some smaller and foreign type companies (a lot of Chinese stocks report this week) but the economic calender is very heavy this week, highlighted by Friday's monthly labor report.  Frankly, with the huge swarm of new census workers to be hired I thought we'd see some very good (if temporary) labor data March - June 2010, but with weekly jobless claims so awful the past month, I am reconsidering my position.  I thought by this point with the public sector more or less protected by countless stimuli and the private sector "bled out" the past 2.5 years, there would not be that many more private sector jobs to lose - but they just keep on coming....

But as we saw last week, a lot of not so good news was completely ignored ... so let's see what this week brings

Monday - a report the market loves, ISM Manufacturing comes out at 10 AM.  This report has been better than expected much of the past few months - which would be awesome if the US still had a 1960s/1970s economy but it affects far less of the economy in the new paradigm debt laden, finance based service economy.   Construction spending, and personal income and outlays also are reported.

Tuesday - auto sales... eh.

Wednesday - a report I care more about, ISM Services comes out at 10 AM.  This finally broke over 50 last month - barely (which means expansion versus shrinkage) but has lagged far behind Manufacturing.  Since it represents so much more of the economy, it should mean much more but for whatever reason the market focuses far more on Monday's ISM Manufacturing.  Expectation is for a 51 reading - anything in the low to mid 50s should set the market off, anything below 50 should hurt the market.

Thursday - very busy day with the weekly jobless claims first... one would expect this to improve versus last week's horror show.  Productivity and costs comes out at the same time; I expect productivity to continue to soar as less Americans are asked to do the same amount of work.  Expectation is for 6.3%.  Factory orders and pending home sales are at 10 AM.

Friday - the monthly labor reports are released.  Interestingly, despite a -20K print last month, economists think we'll see -50K this month.  (I thought things were improving?)  The squirrly unemployment rate dropped from 10% to 9.7% last month, economists now say it will jump back to 9.8%.  Remember, all these figures are more or less a fiction now - since all the changes we have done as a nation to our estimates since the early 90s have improved the sunshine factor.  Effectively if we measured as we did in the 70s and 80s, we're talking the difference between a 14% unemployment rate and 13.7%, or 13.8%.   But whatever the case, last month it appears there was a once a year adjustment in population which helped to bring the unemployment rate down... I am still wondering where all these people who have dropped out of the work force have gone.

So a very data dependent week, with a lot of reports issued pre-market.  A great opportunity to run the market up, or cull any major losses from bad data if need be, by the SPY futures buyers.  I expect some whippy action, and despite the deluge of data Thursday perhaps some people sitting on their hands until we see Friday's labor reports.  Again, to reiterate the nonsense labor data is going to become even more nonsense in the next 6 months as 1.3M Americans suddenly find employment as census workers, so we won't be back to quasi normal until mid fall or later.

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