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02042010 May 25, 2010

Posted by easterntiger in Uncategorized.
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Weather Report Interim 02042010

Current Positions  (Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) exit;  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 02/03   +4.98, -12.15, -32.68, -18.33

(3wks ago/2wks ago/1wk ago/this week)

From the previous report – Exceptionally calm markets over many weeks have historically preceded explosive market changes, normally in the direction opposite of the most recent trend.

Regarding equities, there has been little in the way of change to report in the past 6 weeks, other than the neutral to weak trend.  So it’s only the slightly rising bond yields that have put pressure on the F fund to make any change to allocations worthwhile.

Just as most markets from stocks to commodities to bonds moved up as a group during 2009, fueled by speculation and cheap money, the trend for this quarter has already leaned heavily toward selling of these categories to recover last years’ profits.  This includes not only stocks and stock groups, but metals (gold, silver, copper).  Some of this price pressure is related to a strengthening dollar against decreases in other currencies.  Metals will continue to be volatile/incur wide swings, though overall, they will still represent more stability over the long term than equities. ‘Smart’ money is still buying metals on dips.

This same upward interest rate pressure which negates F fund profits will make it less attractive for those involved in the global ‘carry trade’ to hold on to their dwindling margins in the borrowed money they’ve used to buy stocks, gold, etc. during the past year.  They will be forced to sell some assets to cover their bets made from money borrowed at lower rates, as these rates now rise from near zero in Japan and the U. S.

I had pointed out in previous reports of the relatively flat range that many global markets had traded within, going back as far as early November.  A large move of some sort was essentially pre-announced with that flat range.   It took exactly 3 days during the week of January 18th to erase ALL of the ‘gains’ on major indexes going back almost 2.5 months.    Slow gains – big, fast drop = resuming the bear market trends. One source I use pointed to the degree of this drop in equity indexes globally that week in January as a ‘selling signal’.   A second source of a ‘selling signal’ examined the narrowing and crossing of the separation, or ‘spread’ between two major American market indexes.  This ‘signal’ has been extremely reliable in projecting upcoming weakness, as one index dramatically weakens against the other.

My own tables show the following slim gains and losses over the past periods, up to the close on Tuesday.

S&P500                  S&P100                  Dow Industrials

Change since December 4th -0.35% -1.72%                    -0.78%

Change since November 5th +2.79%                   +2.09%                   + 2.57%

Our limitations in our ability to move funds at-will to react to market changes result in lower returns by focusing on  low-risk positions.  In the future, I will modify my projections to include both a low-risk and  a higher risk profile.  This will provide another level of opportunity when those rare opportunities present themselves for us to take advantage of occasional, higher return positions.

***The Weekly Momentum Indicator is a strength measure of the S&P100, the largest 100 stocks in the U. S., in terms of market capitalization (share price of each of the 100 stocks times the number of shares available to the public).  The WMI is the difference in the S&P100 average opening price for each of the past three Monday mornings and the average closing price for each of the past three Friday afternoons.  This detects upward, sideways or downward movement of the overall market, since the markets generally move in synch from one index to another, and correlates very well with identifying opportunities for reward/gain and for situations for risk/loss in all equity indexes.  Rising numbers from the prior week are positive opportunities, while falling numbers from the prior week are avoidance opportunities.  I have a weekly, ten year history for this indicator at the time of update in this report (02/03/2010).***
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