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11302012 – Interim November 30, 2012

Posted by easterntiger in markets, stocks.
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Interim Weather Report 11302012

Current Positions  (Changes)
I(Intl) – exit; S(Small Cap) – exit; C(S&P) –exit

F(bonds) – up to 30%

G(money market) – remainder

Weekly Momentum Indicator (WMI***) last 4 weeks, thru 11/30
-26.36, -27.34, -4.44, +14.93
(3wks ago/2wks ago/ 1 wk ago/today)

Positions taken since the previous full report are up about 2% in just under 9 days, with minimal risk.

These positions took full advantage of the optimism over the latest extension of Greek debt support and initial White House/Congressional negotiations on the US fiscal cliff, bringing about a ‘risk-on’ scenario.

The German DAX index has just closed at a level that matches three previous highs since September.  Each close at this level resulted in pullbacks ranging from 2.5% to 10% within weeks.

The standard proxy for the I fund has returned to the same upper bound for 3 months in a row, this current level.  The previous two times, a 3% to 9% pullback followed within 2-3 weeks.  This should again be expected between now and the end of December, practically regardless of other events.

The standard proxy for the S fund could only manage a lower level this month as compared to earlier highs in September, April, March and February.  The current level is lower than all of those prior highs and appears to be running out of steam.  The standard proxy for the C fund is performing similarly to the S fund proxy.  Both are under-performing the I fund proxy.   I use a trending indicator that, after showing strength in mid-month on a weekly basis, now shows another ‘topping’ pattern.  This is in spite of these earlier appearances of strengthening, even through this current week.  This strength could be an illusion, as in a classic example of ‘…past performance is no guarantee of future results…’.

With regrets for the increasing frequency of the need to monitor and adjust positions, the patterns in the past two years have, to use my earlier analogy, acted in the manner of a helium balloon, bouncing on the ceiling.  This provides us with no opportunity to buy at truly low levels, without such extreme risk as in the 2011 European debt crisis. Instead, our opportunity is more like riding an entry from a modest pullback before riding the balloon back to the ceiling again.  We bought at lower than average ‘weekly’ levels, and now we’re selling at higher than average ‘weekly’ levels.  Opportunities to buy and sell near lower than normal annual or monthly levels are not available to us at present.

This ‘ceiling’ is very near the highs of this past March, and practically matches a level below the highs of 2007, and equal to the highs from 2008, and which, so far, are levels that are still much higher than the entire years of 2009, 2010 and 2011.  We are trapped near the upper levels of a five-year high sandwich(!).

Until we have more than a modest pullback, an intermediate or major retrace to much lower levels, our only opportunity is to take advantage of  these short-term moves.  Otherwise, we can take advantage of… nothing.

Also, it does not seem that the Fed’s QE3 intervention is having the expected impact,  at least, so far.   If this response begins to show other evidence in the near term, and without the holding on to the risk in current positions, a new month ahead will offer us with a new allocation of moves that we can use to reenter a favorable position in one or more equity categories.

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