Switched to 100% cash

Fidelity EK Managed Eq. Port: 15.74 (08 Jun)
MLIM EK Managed Eq. Port: 14.70 (08 Jun)

As of Thursday, 08 June the charts have turned fully bearish. As such, I have switched my portfolio to 100% cash (went to 50% cash 17 May).

My current cash mix is 50% USD, 25% Euro and 25% Australian dollar (essentially hedged cash-neutral as the markets are giving mixed currency signals at present).

First chart is the Dow Jones World PNF chart I use (click chart to enlarge):



As can be seen, the price has broken below the 241-244 level I spoke about previous and there is very little support all the way down to the blue support line at around 183. It doesn't necessarily mean it will get that low but it is possible.

Second chart is the MSCI PNF chart:



This chart also generated a sell signal when it broke below 1790. There is very little price support until 1320.

A different view is the same index in a weekly line chart for the past 5 years:



As can be seen, price has broken below the uptrend line in place since the bottom in early 2003 (the quick drop and reversal in late Sept, 2004 was very short lived and thus ignored). As can be seen, price has dropped below the 20 week moving average. Next line of support would be the 50 week moving average (1667) and through that the 200 week moving average (1300; very close to the PNF support mentioned previous at 1320).

Why switch into the USD? Here is why:



A bottom appears to have been formed in the 83.60-83.80 area and a buy signal initiated through 85.30. Once again we see there is very little resistance on this chart until the red downtrend line at around 88.20. Also the chart projects a theoretical price objective of 90.50.

What would turn me bearish on the USD would be a reversal that takes out the bottom just discussed at 83.60. If this happens there will be a rush to the Euro as the next line of support would be at 80.39:



Bottom line: 100% in cash and expect to be there until October. While I do expect there will be some sort of bounce over the next few months, I think there is the potential for much more downside over the next 4 months. On the plus side, I do expect once October is here it will be potentially one of the best buying opportunities in years.

Weekly Update 03 June 2006

Fidelity Emirates Man. Eq. Port: $16.33 (01 June)
MLIM Emirates Man. Eq. Port: $15.25 (01 June)

For the week the Fidelity funds were up 0.99% and the MLIM funds up 0.33%. This was the bounce I expected and, while the signs are encouraging, I see no reason to revert back to a full 100% equity position at this time based upon this small "dead cat" bounce.

The first chart is the Dow Jones World daily line chart (click to enlarge):



As can be seen, the index has bounced off the rising support line 5 times now. This area around 241-244 is a great line of support. A break below will be a further confirmation of a sell signal and should this occur I will switch to 100% cash.

Further to the above, here is my personal PNF chart I use:



It is clear that there is price congestion (ie. price support) in the 241-244 area. Any price above this level is bullish even though technically on this chart it is on a sell signal (when I went to 50% cash). Also note any break below the 241-244 level and there is next to no support until around 226 (almost an 8% decline).

Last chart is a traditional PNF of the MSCI World Index (the benchmark used by our mutual fund companies to judge their performance):



The key thing to note here is how quickly the price rose once it finally broke above the 1330 price level in Oct, 2004. That is a 46.6% rise in 1 year 7 months; very unusual for a world index and at a rate that is unsustainable.

Has it topped? Impossible to say at present. The chart is still on a buy signal and will continue to do so until a break of 1790. Should this occur there is price support in the 1730-1760 area. Any break below this and there is very little price support due to the rapid rise until 1330 (which would be a 27% decline from present levels). Not saying it will happen (yet?) but it is certainly possible.

Bottom line is I'm still 50% equities, 50% cash and watching closely.