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09222010 September 22, 2010

Posted by easterntiger in economy, financial, markets, stocks.

Weather Report 09222010

Current Positions  ( Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) up to 50%;  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 09/22

+8.9, +17.12, +26.51, +12.94

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

Very short-term, bullish market conditions are frequently found under either one of the following two conditions that have occurred in the past few days and weeks.

Condition #1 – every 3rd week of the month (last week) is options and futures expiration week.  Markets tend to make short-term moves that are in direct opposition to the number or level of  short-term contracts being held by the least informed group of speculators, who are called the ‘small speculators’.  If the small speculators are holding positions in anticipation of a move down, then, the large speculators (hedge funds, institutional traders, etc.) will maneuver the markets slowly upwards, to ‘waste away’ the small specs positions, out of the pockets of the small specs and into the pockets of those with the ability to better control market levels.  The goal, or game, is to make the small specs lose!!  (The value of an option goes to ZERO if held for too long and in the wrong direction)

Condition #2 – the regular meetings by the Federal Reserve Board, completed yesterday,  are normally preceded by slow upmoves, or flat moves, inspiring confident chatter on the business channels, and into Wall Street and Main Street, just until the release of the more detailed notes from the meeting which come a few days after the announcement.  To push the matter even further, a speech this upcoming Friday by the Fed chief is likely to be another excuse to simply ‘pause’ the markets, until the ‘wizard’ speaks again from behind the curtain.

I digress.

Each of these two conditions, even separately, often signal short term peaks.  Taken together, it’s almost a certainty that either slightly before or slightly after Bernanke’s speech on Friday, that ‘profit taking’ opportunities will be exercised.   (WE are told to focus on the long-term and take our lumps, while the folks with the six- & seven-figure bonuses clear the tables every few weeks before each move up or down).

And on the news yesterday, sold as good news by the media, by the National Bureau of Economic Research (NBER) that the recession ended 15 months ago, I have an obvious question.  If it took 15 months to accumulate enough accurate data to determine this fact, doesn’t that also mean that we will be far into the next one before that too is accurately determined?

What they also didn’t announce concurrently was that (1) 73% of the growth came from the impact of  99-weeks of unemployment benefits for over 15 million people, and (2) gross domestic private investment has moved downward from 17.3% of GDP at the start of the recession to 11.3% last year.  This means that the slack, or boost, was clearly funded by other government spending (or borrowing as the case is certain to be), those benefit extensions, plus the home loan incentives which have already expired.  And, let’s not forget the artificially stimulative effect of the now-forgotten ‘Cash for Clunkers’.  There’s also the not so easily measured impact of the ‘quantitative easing’ programs by the Fed which were heavily relied upon last year, and which expired in April of this year.  It doesn’t take a rocket scientist to figure out that this ‘growth’ is fleeting and unsustainable.

Our F fund has begun the turn upward that normally anticipates, or accompanies these downturning equities.   This move should last several weeks.

Gold is now $50 dollars above it’s most recent peak of about 6 months ago, just as it was at that time about $50 above the previous peak about 6 months before that.   Hmmm…….

I have spent a lot of the past 5 years focusing on gold, as gold has moved from below $600 to near $1300.  Since that trend is clear, I will soon begin to focus more on what I feel is the next ‘mega-trend’, crude oil.  Unfortunately, it’s not good news.

I have a friend who some of you know.   Between us, he’s the ‘perma-bull’.  He calls me the bear.

I asked him a question today.

My question –  If the equity markets now are just about where they were 10 years ago, why do bulls treat each and every rally (such as last week) as if it’s the coming of the next bull market, using terms like ‘resilience‘ or ‘underlying fundamentals‘ or ‘breakout‘, no matter how many times it stalls and turns the other way?

I’m still awaiting an answer.



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