Saturday, March 17, 2012

17 Mar 2012

Israel voted to attack Iran yesterday.  I'm not sure if that means they will actually do it or not.  Nor am I sure of when.

I decided to create my bull market comparison chart using Brent crude instead of West Texas Intermediate Cushing.  My understanding is that Brent crude has the larger relevance due to its usage in Europe and the US. It certainly has appreciated more.  The US and UK completely mistimed their announcement of the SPR, and the waivering on it caused crude to shoot right back to where it was even though it has now been formalized.

Rydex Funds providing some measures of how overbought the market was on March 1st.  The first chart is the amount of money in their bear funds plus money market (safe) assets / the amount of money in the bull funds.  If bull funds dwarf that of the former, the number is smaller and near the top of the inverted graphic below.  This is from  Visit their site if you would like to learn more.  I don't have more up to date data, but doubt it has changed much.
Screen shot 2012-03-02 at 9.19.37 AM
The second and fourth charts show just how little money is in the MoneyMarket and Bear Funds, and the last shows how retail investors have mostly left the building since Jan 2011.  The downtrend from October 2005 also signals something...I don't know what.  More money into hard assets, more people managing their own money?
Update:  17 Mar 2012, I found the CBOE Options SKEW index is essentially off the charts and decided to post it.  To read more about it, click here:  It wasn't very good with peaks/valleys until what looks like after March 2009.  Since then, it appears to have been a bit more accurate with finding relative peaks and valleys.

In my long term measure, we are approaching the highs made last June.  This lags the market by quite a bit as prices precede long term moving average cross overs.  Divergent peaks / valleys provide even more accurate turning points than the current value.

In my medium term measure, we are still heavily lagging recent highs.  On one hand, this implies a possibility for further rise.  On the other hand, it says there is significant weakness beneath the pretty cover put on by the indexes.  Similar to above, divergent peaks / valleys provide even more accurate turning points than the current value.
 In the short term, we have turned down again the last three days.  I noticed that it was once again the most beat up stocks (long term) rallying on Thursday and Friday like BAC and IRE as opposed to AAPL which closed below recent highs. As I have talked about before, I find that when the trash rallies a given cycle (no matter the time frame) is nearly over.  The red line below bottomed on 3/6/12.  BAC did nothing until 3/12/12 while AAPL went up each of those days.
 This is the percent of stocks 2 standard deviations above their 200 day moving average.
 This is the percent of stocks 2 standard deviations above their 40 day moving average.  Like above, on one hand this shows oversold conditions for a lot of stocks.  It also shows distribution that is unseen by the average investor.

In case I seem like a broken record or that I should lose my apparent bias (note that I did say to buy in December), I'm not the only one who doesn't understand the market's persistence.  I unfortunately always underestimate the length of rallies and forget that according to my measures over time, 2/3rds of the time the market is optimistic.  This is one reason I believe my indicators work well for bottoms, but not so well for tops.  I apologize if I have misled you.

See Bert Dohmen's most recent letter for his comments on it:

"This is the strangest market behavior we have ever seen. Such a prolonged, low volatility upmove on declining volume is one for the record books. Furthermore, on March 6 the DOW plunged over 200 points, the largest daily decline this year. That was followed by a similar one day surge one week later, the largest daily rise this year. That was just one day after the lowest volume day this year. Does anyone really believe that this is normal, or is it a confirmation that the “high frequency traders” control the markets? Market manipulation is something we apparently have to live with until the regulators do their job."

He predicted the 2008 crisis with his book Melt Down.

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