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01272011 January 27, 2011

Posted by easterntiger in economic history, economy, financial, gold, markets, oil, stocks.
Tags: , , , , , , , , , , , ,

Weather Report  01272010

Current Positions  (No Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) up to 20%  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 1/25   +13.81, +17.81, +13.84, +9.87

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

For those familiar with this sheet, the end of the month is that time where I offer an update for the very purpose of taking advantage of our ‘move(s) for the month’, if you haven’t already done so.  With our limits, opportunities for moving funds are rare, therefore, we don’t want to waste them if there is any opportunity available at all.

For 19 of the past 22 weeks, which takes us back to the end of August, market action has consisted mainly of movement that averages less than one point per day on the S&P 100.  (Hint – take each number in the WMI above, divide it by 3, and that number is the average movement of the S&P100 for each of the previous 3 weeks – example 9.87/3 = 3.29 points per week average movement for each week for the past 3! )  Yes, you can profit in these markets, but, with a few points a week, week after week, your risk is higher than if there was MORE  upward momentum.  Very little has changed from this minor trend and I expect very little will change for the next couple of months, except some very minor pullbacks.

Not so coincidentally, 22 weeks ago was the period where the Fed chairman instituted his Quantitiative Easing, Phase 2 (QE2) – explained here. 

This is not an endorsement of Ciovacco Capital Management or their services. It’s just that their video doesn’t cut any corners on explaining QE2, as many others do.

It might also please you to know, as I have expressed in the past, that I do not come upon my decisions or recommendations solely from my own signals.  That would be an extreme disservice to the trust you have shared with me.  I do my best to translate from those who are much more experienced than me in this area.    Among them is a 42- year veteran of the markets, Bob Bronson (Robert E. Bronson III) of Bronson Capital Markets Research.


I have been fortunate enough, not only to be on a private mailing list of Bob’s, but, he and I share personal emails with other list members on a regular basis, and, most recently, this week.  Bob doesn’t need an endorsement from me, but, I can tell you that it was in 2003 that I learned from him that we were in the midst of a ‘business’ recession, which is of a very different kind that he next projected, our recent ‘consumer’ recession, which he accurately projected would be the next one.

For the remainder of this report, I will include excerpts from our last email exchange, initiated by him simply asking me ‘….how have you been doing with your trading and allocations…’

From: Rxxxxx Xxxx [mailtoxxxxxxxxxx@gmail.com]
Sent: Wednesday, January 19, 2011 12:03 AM
To: <Bob@Xxxxxxxx.com>
Subject: Re: Initial unemployment claims are short term (weeks) bearish for the stock market

Me -I am much more comfortable in not being concerned with these short-term, missed opportunities than many around me, the ‘buy when the Dow hits 10k’ crowd. A trading range is just that, even when it expands a bit.  This looks too much like a rising wedge to me than to be viewed as anything with any measure of comfort. (Weather Report readers – a ‘rising wedge’ is a very steep, but, ultimately negative resolving chart formation)

Other than that, I’m mostly on edge, waiting for the inevitable ‘other shoe to drop’, likely to come during/after contentious budget discussions in the next few months, or, some debt/currency unpleasantness; maintaining safely guarded positions in primary assets, not trusting what I ‘see’ at surface level. Deception is rampant, as usual. -Bronson-> The stock and commodity markets will not stay up that long.

Six months ago, I would not have projected the commodity markets breaking ‘up’ further, at all, after so much mid-year retraction and consolidation. As for the stock markets, from a technical sense, the April top became a breakout zone for the final quarter, rather than a resistance zone, as it first appeared to be; the ‘resistance’ zones erosion appears to have been directly influenced by the unexpected appearance of QE2, and the prolonged/habitual injection of positive sentiment. I have little doubt that the latter can persist even longer than the expiration of QE2. Bronson-> Our technical and fundamental work shows that is extremely unlikely in addition to considering that investors started anticipating QE2 long before its announcement, and its economic stimulus value has been largely debunked by big money One ‘trend’ in place is somewhat dissection of US and European markets trending slightly higher/matching to slightly exceeding recent highs, while emerging markets strengthened noticeably, Bronson-> the first chart below shows they are also underperforming – badly while, at the same time, Asian markets appeared more or less listless, staying below recent highs.

I flipped the ‘off’ switch completely on equities right before the correction last February. I’m not bothered by not jumping on the Sept or Dec ‘bottoms’.  I have some personal tools, based upon relative strength (daily & weekly), volatility, p/c ratios, etc. that show divergences at many junctures, and, that each ‘rally’ has only come just at the time that weakness was about to turn severely, sure signs of manipulated buying. Bronson->They should be giving you better signals now! And, of course, the appreciation rates are only as much as one who is truly asleep at the wheel, so to speak, can allow themselves to settle for comfortably.  I have reminded many of my complacent cohorts to recall the speed in which selloffs can occur, erasing months of these slow gains in a matter of weeks, or even days. Bronson-> Yes, look at the technology and transportation sectors/industries the past two days erasing the previous 11 days. This is why we have already taken several partial positions and even completed ones like profits on gold. Have you consider DEE, or an equivalent? Just beginning to look at that one specifically, thanks to your pointing it out, rather than my recent tactic of seeking long/double long, short/double shorts in symbols such as SCO/UCO, AGQ/ZSL, DIG/DUG. Bronson->Good!

I am now spending less time focusing on short term moves, since the trends in metals, currencies, energies and bonds have all gradually turned to chop. I’ve lightly off-loaded some metal positions, even as I am certain of longer term uptrends, Bronson->What? Short term trends have had a habit of reversing themselves quite frequently for some time, therefore, I have developed a ‘delayed reaction’, with, of course, some risk of missing early entries.  Do you disagree that metals have significantly more upside in the medium to long term than downside? Bronson-> Neither industrials or precious metals have any relative or absolute strength – see also those charts below, which show that have been so weak following our Dec 14 sell signal – see that email copied in further below – which allowed you to at least start partial positions selling and selling short into strength, now you have to wait for a rally to short them safely favoring an expectation that some distribution might be underway there,  just as I have seen in equities, with the extremely inverted buy/sell ratios by insiders.

Now seems like a great time to sit on your hands and wait, rather than to anticipate. Bronson-> I assume you know that we’re strongly recommending the opposite, right? I must have missed an update or two.  In spite of the details on the overall condition of various markets, I seem to have missed any direct reference to full anticipation of any specific emerging trend strong enough for high probability entry. (Weather Report readers – by ‘the opposite’, Bob means that he is recommending a safe measure of participation, with knowledge that equity markets, metals,  commodities, etc. are stressed and are weakening!!)

Dean Witter Emerging Markets

Gold & Silver Indexes

Multi-Sectors Commodity Metals Trust Fund

30 Yr Treasury Bond - 1980-2011

10 Year Treasury Note



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