Stock Market Update 15 June 2008

Happy Father's Day!!

A very interesting week in the markets......to start off, here are the Emirates Provident Fund statistics year-to-date for my A/B account stock/bond/currency funds:

Current Core Holdings:

Fidelity International Bond Fund: +1.10%
Fidelity Australian Dollar Fund: +2.80%
Fidelity Euro Currency Fund: +1.49%

Ongoing Monthly Purchases:

BlackRock/MLIM Equity Portfolio: -9.88%
Fidelity International Fund: -7.5%
Russell Global 90 Fund: -8.05%

As can be seen, my market-timed "core holdings" continue to beat a "buy and hold" equity strategy by being 100% weighted in International Bonds and Aussie/Euro Currencies. Those who have remained 100% invested in equities over this period have taken a beating both YTD and more so from the July/2007 highs.

My "ongoing equity purchases" continue to underperform (as I expect they will during bear markets) to take advantage of lower prices in equities to accumulate the maximum number of equity shares per month on an ongoing basis. For those who are new subscribers, please review my previous blog on my investment strategy at:

http://emiratescapitalassetmanagement.blogspot.com/2008/01/monthly-investment-strategy.html).

As I have mentioned previously, there are times when you want to be aggressive to maximize total return ON capital and there are times where you need to be conservative to maximize total return OF capital. You need to recognize when you are swimming with the current and when you are swimming against the current. The "current" is currently in our faces and my strategy at this point is just to "hold my own" in the middle of the river; when the current reverses THAT is the time to be aggressively swimming with the current. Now is still not that time.

For those who are eager to see double digit returns, it must be re-stated that patience is required in times of market fluctuations such as now. During bear markets, if you can preserve the capital you have accumulated you are well ahead of the game. Those who either stay 100% invested in equities or those who "jump the gun" and try to get in too early get killed. On the other side of the trade, those that remain in cash at all times and never hold equities get totally obliterated relative to inflation over time. My intention is to experience neither scenario.

On to the Dow Jones World Index (DJW) charts. First chart is a lesson in chart pattern recognition and the value of Technical Analysis (click on all charts to enlarge):



What you are looking at is called a "Head and Shoulders" pattern. It can be seen that the price action forms a "left shoulder" (LS) followed by a Head followed by a right shoulder (RS). The line connecting the shoulders is the "neckline". The price projection is derived by taking the distance between the head and the neckline directly below (Head = 297, neckline directly below the head = 287; difference = 10) and once the right shoulder breaks below the neckline applying the difference to the breakdown level to get the target (right shoulder breakdown at 286, price target = 286 - 10 = 276).

As can be seen, Thursdays close was 275.80.......price projection complete.

This is the reason why I did not enter the market after giving a "heads up" blog on the VIX breakout early last week; the pattern was too perfect to ignore. It turned out exactly as it should and prevented an early entry.


Next chart is the 1 year daily chart:



Since my last update, this chart has turned BEARISH. Key points:

Bearish:
-price broken below the 50 day moving average
-the ADX (14) red DI- line has broken 60 indicating a short term bearish trend
-the MACD has broken below zero

Bullish:
-RSI (14) has bounce off oversold @30
-price has found support right at a previous price level (275.80)
-the slow Sto is oversold

Overall this chart is Bearish.


Next chart is the 1-box Point and Figure (PNF) chart:



Price turned bearish on a break below 286 and projects a target of 254. This short term chart is Bearish.


Next chart is the DJW Traditional PNF chart



This chart still indicates Bullish and projects a target of 364.


Next chart is the DJW 4 year weekly chart:

The possible downtrend channel I spoke about previous appears to be intact. If so, it projects to a bottom around 248 currently. This chart is Bearish.


Next chart is our longer term DJW weekly line chart:

This chart went bearish on a 13 week moving average cross of the 34 week moving average. There is no change and this chart remains Bearish.


Next is the long term monthly chart:

No changes as the closing monthly price in May did not close above the 12 month moving average. Still Bearish.


Bottom Line:

Based upon the charts I remain invested as follows:

-50% Fidelity International Bond Fund

-25% Fidelity Australian Dollar Fund

-25% Fidelity Euro Currency Fund

As I noted in a previous blog, my bond timing charts have turned bearish. As far as currencies are concerned, my U.S. dollar charts have turned short term bullish. I will be monitoring these next week with the possibility of selling my Aussie dollar/Euro positions and moving into USD cash (or equities if the charts indicate).

The next week will be very interesting. I expect a higher price close next week due to options expiry on June 20 (options expiry weeks have a statistically positive close) and the fact the market is short term oversold and at support. There is a possibility that if we have hit a low this past Thursday it MAY be the intermediate bottom I have been looking for.

If/when I make a change I will blog it immediately.

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