Bad Karma

Market update as of the market close Friday, 14 Jan 2011.

I have not bothered to post much recently as the song remains the same:

-All of my technical indicators have now switched back to bullish in all time frames (short term, intermediate term, long term, Provident Fund ratio charts).

-Combined with the bullish cycle period we are currently in (yearly cycle bullish, 4 year cycle bullish), we have entered the technical "sweet spot" for equity investing.

-I still believe this bull market has a long way to run with much higher prices before it is over but we have come too far/too fast in this rise. The market needs to back fill and scare the over-bullish nature of current market participants before we head much higher.

This market is now EXTREMELY OVERBOUGHT and, while the old says is "they do not ring a bell at the top", my technical bells are ringing loud and clear. This market is DANGEROUS and a pullback of significance could come at any time now.


CLICK ALL CHARTS TO ENLARGE:


New Lows:



This is a view of the current bull market going back to early 2009. The key to note is the HUGE INCREASE IN NEW LOWS THAT OCCURRED ON FRIDAY. This spike occurred in a market that was up .74% on the day and closed at a new all time high for this bull market rally.

Note each time new lows spiked to this level over the past 2 years it was during market DECLINES ....... that would be expected and makes sense that new lows would increase as the market falls. Now we have a huge spike in new lows with the market ADVANCING?

Folks; that just doesn't happen in a "normal" market.

What is going on is there are fewer and fewer stocks are leading this market higher. It is literally running on fumes and could collapse at any time.


VIX weekly:



A weekly chart of the VIX (often referred to as the "volatility index" or the "fear index").

The VIX can be thought of as a "comfort" chart. When it is low, it shows investors are complacent with their positions and are not buying portfolio insurance (as they don't expect a decline).

Note each time in that past 2 years the VIX has reached the 16 level it has spiked higher. This has been associated with a market sell off. We are again at the 16 level.

Investors have gotten too bullish. This is a contrarian signal that the market is about to turn downwards.


SPX PNF 1 box:



The 1-box PNF is bullish. A price print of 1280 would turn the chart bearish.


SPX 60 minute:



All short term technical indicators are still bullish from the last signal Dec 01. Price broke out of a small bearish wedge I have drawn on the chart and now is challenging the upper channel line (black dotted). This would be a natural point to commence a decline.


SPX 6 month daily:



The 6 month daily chart is bullish and established in the up trending channel. The RSI has remained overbought for all of Dec and the current part of Jan. This is an extremely strong indication of how overbought it is.

I have drawn an upper trend line that forms the top of a rising bearish wedge (blue trend line on top and black trend line on bottom). A break of the wedge would confirm the decline.


SPX 1 year daily:



A 1 year daily view of the SPX showing the same wedge. A very interesting convergence of various indicators is shown:

-the upper trend line of the wedge
-the trend line of the larger channel
-the next Fibonacci turn date based on the early July bottom

Note all of them converge Jan 26 @ 1313. That is only 1.5% above current levels. If price were to break above that level I would be stunned given the incredible technical resistance at that point.



Bottom Line:


The markets are overbought, overvalued and over bullish. They are showing signs of technical weakness but price has continued to rise.

In hindsight I have been slow to move to a more offensive position within my Provident Fund given the technical nature of the charts. I can live with that as I would much rather be "out of a trade wishing I was in" than to be "in a trade wishing I was out".

I remain convinced the market will begin a significant decline and do not wish to have money stolen out of my account by the "market-pumpers" currently playing in this market. In fact, within the ECAM Asset Allocation Fund I put on hedges Friday to protect for possible downside losses that could come as soon as Monday. The fund has performed exceedingly well over the past months and I WILL keep those profits.

I remain convinced once this upcoming decline concludes it will be time to move more of the Provident Fund into equities. Now is definitely not the time.


Emirates Provident Fund:

As of Thur, 23 Dec I remain in 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.


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dwaynemalone1@gmail.com