Monday, March 05, 2007

Market trails... continued

The market had a bad day
(some quotes and notes borrowed from Chris Bain and David Gaffen)
Last week I called for exiting the broad market and sold my holdings in the DIA dow etf. Over the weekend I predicted more market softening. Today most of the major market indexes (S&P 500, Nasqaq, and the Russell 2000 pictured above) closed within one point of their lows. That suggests a broad softening and selling that only stopped because the day came to an end.

One indicator that the market may remain weak for a while? Some of “the biggest money managers and strategists on Wall Street are standing their ground,” write Michael Tsang and Daniel Hauck of Bloomberg News. “Putnam Investments, which oversees one of the best-performing U.S. equity funds, and BlackRock Inc., the second- largest publicly traded U.S. money manager, say stocks are cheap. Citigroup Inc. and UBS AG are telling investors to add to their U.S. holdings. All 15 strategists tracked by Bloomberg were sticking with their forecasts as of March 2. ”

When investment managers are firmly standing their ground its a sign of impending weakness. Oddly enough when the investment managers are worrying is when the market is most likely to climb.

All that being said I'm sure the market is going to bounce around quite a bit. After hours trading today saw some strong buying, for example, and the market could open higher. Additionally I have done a lot of historic analysis of volatility indicators and the pattern today of low volatility jumping up only AFTER the market declined tends to preclude a recovery followed months later by a fall.

David Geffen, writing for WSJ.com, notes: Commercial hedgers, colloquially known as the “smart money,” were net short nearly 41,000 Dow industrials contracts, a high for the past 52 weeks, according to the Commodity Futures Trading Commission. Meanwhile, their counterparts, the speculators, were holding their longest position in the past 52 weeks of nearly 25,000 contracts. Speculators are often caught going the wrong direction when the market turns, and they’ve held a very long position for several weeks now in the Dow futures.

What does it all mean? I'm sitting out and holding only the Finance Wonk Buy stocks for now. Those are good long term holdings and the rest of my money is out of the market for a bit. The DOW is solidly down 300 points plus since I sold, so that puts readers here almost 3% ahead of the market for the month :)

Invest well,

FW
====

Michele Leder, writing at Footnoted.org, points out that excecutives at HSBC — which this morning reported a 36% jump in the cost to cover bad debts, thanks mainly to the subprime-lending meltdown — pays some healthy housing perks to some of its executives. “Now, when you’re making $700k a year in base salary,” she writes, “and still need help paying for a place to live, is it really any wonder that HSBC seems to ahve missed some of the signals that they were over-exposed in the subprime housing market, whether or not the loans were made to ‘trailer park’ people?”

Dan Carty says the move in the yen was surprising in some ways, not because of the recent strength in the currency, but the weakness that preceded it. He expected the yen to strengthen a couple of weeks ago, but instead, “it was blasted lower and weaker against the major currencies. This took many traders and funds by surprise and they added shorts on the Yen, instead of longs as it moved towards 122,” he writes. “Then a bounce followed, following comments from some BoJ members, from the same support where I thought the Yen would remain ’stable.’ This caused a bunch of new shorts to cover and pushed in the pent-up demand for the Yen among the bulls.”

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