Wednesday, September 15, 2010

Provident Fund Switch

This has been a very unusual September and has me worried.


Click on all charts to enlarge:


Normally September is the worst perfoming month in any given year (followed by October) and especially bad in year 2 of the U.S. presidential cycle. More specifically, it has a historical tendency (in my studies I go all the way back to 1950) to be "flattish" in the 1st 2 weeks of Sept and then moderately negative into the end of the month. October is more "mixed" but has the greatest number of "crashes" of any given month.

As of yesterday the market is up almost 7% for the month of Sept (weird #1). With the next 2 weeks historically weak, AND with the historic tendency of the markets to be down for the next 6 weeks, AND with options expiry occuring this Friday, it feels to me like the market makers are setting up for a big fall over the next month.

I began to notice this "weird" action last week when I saw unusual put buying in an otherwise up-week (weird #2). I suspect it is the market makers pre-positioning themselves for a market fall.

Next I noted that over the past market rise (shown in pink on the chart), the number of new highs vs new lows on the NYSE has been "rangebound" while the markets price has advanced.

NYSE New Highs vs New Lows:



This is not normal as there should be a continuous upward slant in new highs vs new lows in a normally functioning market (weird #3).


SPX 60 minute chart:



The range I have discussed previous is still intact. Price appears to have formed a rising wedge pattern which is bearish.

Negative divergences on the RSI and MACD are worrying.


SPX 6 month daily:



Range well defined. We are near the upper range.

Nothing bearish yet on this chart except for the ongoing low volume. The break 3 days ago of the 100 dma + downtrend line and the 200 dma on Monday is bullish. However, all these "significant events" were on low volume. Unless I see up-days on STRONG VOLUME ..... I am worried.

IF price were to break above the congestion zone (daily close >1132) WITH above average volume; we have a potential for an "inverse head and shoulders" formation with a price projection to 1254. I don't think we will get it.


BOTTOM LINE:

The "score card" based upon my technical charts (not shown in today's update due to personal time constraints) now shows:

-The two "long term" charts are BULLISH as they are in agreement (monthly chart bullish/weekly chart bullish)

-The two "intermediate term" charts are BULLISH as they are in agreement (weekly chart bullish/PnF chart bullish)

-The two "short term" charts are BULLISH as they are in agreement (daily chart is bullish/60 minute chart is bullish)

You can see my dilemma. This is the 1st time that I can recall when my "weird" alarm bells were ringing while all my technical charts were saying the opposite. When that happens it is time to take profits and step back and watch for the next few weeks.



You got to know when to hold 'em, know when to fold 'em,Know when to
walk away and know when to run.You never count your money when you're sittin' at
the table.There'll be time enough for countin' when the dealin's done.

Kenny Rogers "The Gambler"


Emirates Provident Fund:

I have made a switch my provident fund as of Wed, 15 Sept (14 Sept closing price) into a strategic 25% equities/75% USD cash weighting as follows:**

BlackRock US Dollar Cash Portfolio Fund: 75%
Russell Global 90 Fund: 15%
Fidelity International Fund: 10%

**Actual positions will change daily based upon price action and market volatility.


ECAM Asset Allocation Fund:

I have added a 2 x Inverse ETF (SDS) to the the ECAM fund to place it's core equity positions in a "hedged neutral" position as follows:

-Core Equities: +30% (VTI 10%, VB 5%, VWO 15%)
-Core Bonds: +15% (BND 10%, TIP 5%)
-Core Real Estate: +10% (VNQ 10%)
-Core Commodities: +15% (DBC 10%, DBA 5%)
-Core Managed Timber: +5% (CUT 5%)
-Discretionary: +7.5% (VPU 5%, ITB 2.5%)
-Hedge: +20% (SDS short SPX x2 giving a 40% short equity hedge)
-Cash: -2.5%


Legal Disclaimer: The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES. The author will reveal his current market positions and holdings but actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility. The author is not licensed as an investment advisor in the UAE and therefore cannot provide individual account advice to individuals and/or institutions.

dwaynemalone1@gmail.com

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