Hopefully Pimco is just getting started with this and can bring some other differentiation besides the two TIPS funds. Obviously (to some readers) I'd like to see them do more with foreign bonds.
There were a lot of comments yesterday that I could not get to, so....
Early in the day I Tweeted (you know, on the Twitter, like the young people) about a comment from Blackswan Trading. The comment was about students in China laughing at Timothy Geithner when he talked about a strong dollar. To answer BillB these guys have nothing to do with Taleb. I have no idea who started using the term first but I get some good info from the one that is not Taleb in a daily email.
A reader asked what if anything I have done with bonds of late given my idea that the market is generally broken. The only thing to come due lately was the Norway paper which I rolled forward to 2011. This calendar year I have bought two short term corporate issues; one from a health care company and the other from a tech company both of which are highly rated.
A couple of comments came in about the 200 DMA which for now has been crossed. One reader seemed ticked I hadn't mentioned it yet. To him, I say chillax broseph. I mentioned in the comments the other day that I will be doing a little bit of buying this week and if we keep the 200 DMA today then I have a trade ready to go (probably in the last hour). I will detail the trade in Thursday's post assuming there is a trade.
As far as the other comment which was about what to do to re-equitize well that is a tough one. While I will have more tomorrow (again assuming I do the trade) it would seem to me one way to go is to buy into something that tends to be early cycle or buy something with a lot of beta to get some bang for the buck or buy something you are particularly underweight in or maybe just buy the market (broad based index fund) just to get the exposure.
For now I have the next trade figured (meaning for each account). I have the trade after that (if circumstance dictates) nailed down to two choices from the same sector and have a couple of vague ideas (well not that vague) for after that.
Another reader asked what I was going to do with my double short position. When I bought I had indicated I'd buy more after a 5% move in either direction. Well we've had that (actually a couple of points away) but at the same time the market has done up the 200 DMA has tanked. SPX 945 would have been below the 200 DMA from when I bought SDS but now not. I'm not in a hurry to sell what I have but adding more above the 200 DMA is unlikely for me.
That may draw a heckle or two but my goal is avoiding most of down a lot not successful scalping.
Something new for me; comments I made in an interview are being dissected at a site called Gold News.
Felix Salmon did a write up about Nassim Taleb that I missed in writing up my post yesterday. Apparently Felix has spoken to him quite a few times and so has a better handle than most. He said one thing in particular that stuck out which was;
Taleb is, as ever, annoyed that people are looking at things like GQ errors rather than at his bigger philosophical points
This is what I have been saying about him since I first stumbled across him a while back. That I understand his biggest possible macro is nice but I still need to read his stuff very slowly.
19 comments:
So you are ready to increase exposure now that the 200 day moving average has been breached--keeping to the unemotional plan that we've heard about for so long. I think that committing funds to the market at this point is dangerous after such a huge run--you might agree seeing that you are holding a double short on the market which seems to contradict the plan.
There's a post on thestreet.com about Bill Gross steering investors to foreign bonds, if you haven't seen it already.
The 200 dma will be interesting to watch. The breach feels just a little artificial to me, driven by first of the month inflows and maybe just a little gamesmanship (???) by all those who tout the indicator. It has come down so much and the market has rallied on such low volume that I'm skeptical that demand for equities is now healthy.
On the other hand, it is what it is and, as you've said many times, people won't believe in the turn when it comes.
I re-equitized to early in the fall. I am now only 85% invested and wished I had put more in earlier. Now a pull back concerns me even though I think this rally still has legs.
Reinvesting is always difficult. I'd stick to your plan, except you are correct many of us have trouble understanding keeping a double short while buying more equities.
My assumption is Roger is keeping the double short since he expects a whipsaw with his purchase today. short term this market is soooooo overbought.
So you are ready to increase exposure now that the 200 day moving average has been breached--keeping to the unemotional plan that we've heard about for so long. I think that committing funds to the market at this point is dangerous after such a huge run
Not trying to start an argument, just making a point. This is precisely why following hard rules is a discipline in and of itself. I'm very guilty of trying to 'outsmart' my rules and have learned the hard way that either follow the rules set forth by the trading plan or don't be upset when the market doesn't do what you expected.
I think 'outsmarting' your plan is generally a recipe for disaster. When following the plan 'feels' wrong, it's usually right.
ALOHA
To second Bill B's point, it is one thing to find a flaw in the framework that guides your investing and adjust the framework in response, it is quite another to ignore that framework on some plays and adhere to it on others, leaving it essentially unchanged: That's not a discipline, its a cocktail party conversation.
Discipline, properly speaking, does not mean slavish adherence to a framework and normally includes the means to analyze and change as well as follow; lack of discipline implies none of these values is present.
As to the 200 DMA, it is quite possible that stimulus money and program traders banging the shorts out is distorting the slope somewhat (the window dressing last Friday afternoon was so blatant I laughed out loud) but that is not a regular occurrence and anticipating it adds a layer of complexity easily avoided by simply 're-equitizing' more incrementally: Takes a fair amount of capital to pump a gorilla like the S&P500 and even the big boys including the 800lb Fed can't keep it up indefinitely.
My tactical accounts where I mostly swing trade are loving this market action but I do expect a reversal soon.
My strategic accounts are enjoying this big rally too but with far less exuberance because they are still heavily defensive and will remain so until fundamental indicators such as unemployment look better: Fixed income sources aside I basically make money in these accounts by buying late and selling early because my discipline frankly makes it difficult to do otherwise.
The market is back below its 200 EMA which is a more useful indicator
The market is back below its 200 EMA which is a more useful indicator
Care to elaborate on this? Any statistical evidence that proves that EMA is better than SMA?
@RW
My tactical accounts where I mostly swing trade are loving this market action but I do expect a reversal soon.
What is your framework for swing trading. I'm mostly a LT investor/trader looking to capture long-term trends (12+ months), but I am interested in potential to eventually do some shorter-term swing trading, but I feel like I would have to develop the proper framework for that. My existing framework is tailored for a multi-year approach.
My strategic accounts are enjoying this big rally too but with far less exuberance because they are still heavily defensive and will remain so until fundamental indicators such as unemployment look better: Fixed income sources aside I basically make money in these accounts by buying late and selling early because my discipline frankly makes it difficult to do otherwise.
So smart yet so few have the discipline to do this. I think it was Rothschild who said the key was to buy late and sell early. It seems like the total novice is obsessed with buying the bottom and selling the top, and chasing the last 1/3 of a big move that is prone to quickly disappear.
What is your primary tool in your framework to shift back and forth from equities to cash. Some type of long-term normalized valuation metric like Tobin's Q or Shiller P/E?
Interestingly, according to those metrics, the market is no longer cheap and is actually slightly overvalued. That said, the technicals are shaping up quite nicely. Coppock curve buy signal, good breadth and alot of indicators looking like the 02/03 bottom.
I had really hoped the market would trade sideways for many months in that 600-700 region so that good basing action and positive LT technical buy signals could take place at cheap valuations, but the market doesn't act according to my wishes.
Instead we are getting LT technical buy signals at slightly high valuation levels like 02/03, and it won't surprise me if this market makes an extended move and we get to overvalued levels again like 2000 and 2007 (but not as high, maybe 1200ish and over a shorter time frame). Echo bubble 3.0?
I suspect this will end badly AGAIN with a good chunk of retail investors piling in at the end of the run just like 1998-2000 and 2006-2007.
Bill B: I read up on dshort.com after someone posted it here last year.
Their data here shows that the 200 day EMA is a bit smoother, though it can lag big drops by a month.
Thanks SD, but that's not proof in my eyes. It's a cherry picked time frame. I may conduct some independent studies with random timeframes with both applied to see if there is truly any statistical evidence.
I don't see a reason documented on his website, so I emailed him. I'll let everyone know if he responds.
MikeC: As far as swing trading goes, I'm not orthodox so a trade is not always initiated by a technical signal and could last days, weeks or months or even turn into a long-term holding after it was 'paid for' via trading (I'm fond of 'free' assets).
There are a lot of folks selling what look like repackaged day/short-term trading stuff out there but most of it appears dedicated to reading chart entrails, er ...patterns which, beyond support and resistence (a useful concept), never made sense to me. I probably pay a lot more attention than most to quantitative and fundamental data to identify targets when I trade tactically but do use tools like Bollinger bands, average true range, money flow and relative strength (MFI and RSI) to regulate entry and exit. Alan Farley's site at http://www.hardrightedge.com has a good array of resources so its possible to pick and choose what suits and his money management discipline alone is worth perusal even if technical analysis proves uncongenial (I knew Alan many years ago on the now defunct Compuserve Investors Forum but have no connection to him or his business).
I'm afraid the global asset allocation model I've worked out over the years for my strategic portfolio has become rather complex and is not suitable material for a blog comment. I think I've mentioned before that it began as an emulation of Harry Browne's Permanent Portfolio but that was a long time ago and it's moved a fair bit beyond that since.
Your long-term read is pretty close to mine and I do not see this ending well either but it could indeed run for an extended period of time so strategically I am willing to run, or limp, with it as it allows. Many indicators are looking better but stronger confirmation of trend is required to justify placing additional capital at risk IMO; e.g., a signal characteristic of this downturn has been the astonishing speed of some of its larger moves.
Bill B- Well….that 200 day SMA that everyone loves to talk about, but which is chronically exposed to “false breaks,” comes in at 923. I’m expecting to see some buying in front of 923, because ‘that’s what you’re supposed to do with moving averages.’ (buy the retest of the "breakout.")
Now, if the market were to break down below this simplistic average it will begin to look a lot like one of many false breakouts in the long and illustrious career of the 200 DMA. Based on Roger's previous posts he clearly understands this and that is why I think he waits to see if the market holds above its average?
Since it appears the above has turned into a simple versus exponential moving average discussion, trader mark posted the following today:
What is ironic, is "my method" said while there was a breakout over the S&P 930 level (which was important as it was previous highs) we got slammed back at the 200 day moving average. I had mentioned earlier this week I was scratching my head because so many things seem out of sorts - the fact we could break through such a key resistance line as the 200 day in just 1 try just does not make any sense historically. But we did... at least in a simple moving average world.
Now in a strange situation, on the 200 day simple moving average ... it has such a sharp slope that on Monday it was up near 930 and today its down to 923. Which is right about the low of the day... the technical book says after a resistance area is broken, you want to buy the pullback to that resistance, as resistance is the new support. But usually it's the same number (or very close) i.e. S&P 930. But in 2 days that number has fallen 7 S&P points... since 200 days ago we were in a vicious sell off of fall 2008... hence this moving average is plummeting.
So it is setting up one interesting dynamic - and 2 different stories depending on whether you're a SMA person or an EMA person. I guess depending on what sort of technician you are - you are living in a different parallel universe right now. It's quite a bullish spot to buy if you are a simple MA folk, but not so much as an exponential MA folk.
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With all that said, we've been saying for weeks the 20 day moving average has been the markets line in the sand. Everytime it is threatened a magical flood of futures orders comes in the market... billions upon billions from "somewhere". I just want to update you on that number... its now up to 908 ... just last week it was below 890.
"So in the near term, I am not really sure here because I see 2 stories - but until we cleanly break that 20 day moving average ... AND we don't see a flurry of futures orders some day at 3:58 PM to change the story (i.e. last Friday)... we have to assume the rally is still on. Because... so much money is trading on hope and squiggly lines.."
More 200DMA talk... In summary buy above the 200DMA as Roger's system advocates.
http://www.crossingwallstreet.com/archives/2009/06/a_closer_look_a_2.html
When Warren Buffett goes on fake financial news to ask people to buy stocks...
...IT IS ALL OVER FOLKS...
Investing has been a "scam" for 30 years, all that portfolio management junk? Just a way to get suckers into the casino. LOL
Most ETFs are not worth the hidden expenses you pay.
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