Year 2, Week 47 Major Position Changes

Cash: 69.9% (vs 50.2% last week)
30 long bias: 28.6% (vs 42.0% last week)
6 short bias: 1.5% (vs 7.8% last week)

36 positions (vs 38 last week)

Weekly thoughts
First to our 2 charts, simple versus exponential....

On the Exponential moving averages, after a large drop Monday that every so slightly broke the 50 day moving average, we rebounded a bit the next two days and then a huge upward move Thursday took us back to where we ended a week ago Friday. We remain below the 200 day moving average which has now dropped from mid S&P 940s to 940.

S&P LargeCap Index

On the Simple moving average, a ton of cross currents. The swoon Monday had us close below the 200 day moving average Monday. That should of been a bearish signal which pointed to more downside - but of course it was not to be. Tuesday a golden cross happened where the 50 day moving average crossed over the 200 day, and this seemed to signal to the computers that it was time to buy. Hence despite a bevy of not so good news Thursday we surged... the not so important 20 day moving average is the only light resistance ahead.


As we have been for weeks, we are stuck with 2 stories depending on what sort of technical analysis methodology you employ. Since the fundamental news remains neutral even through the rosiest of glasses it appears we are stuck with charts as we have been for a long time. I reviewed the economic news Thursday and I saw nothing that should of created a move up like that... but once this market begins to run it seems to feed on itself.

While there is a lot of gyration and hot money chasing from one theme to another the greater index is really not doing one iota the past 2 months. It's a lot of churning and themes of the day and knee jerk reactions of the week, but no progress has been made. We are stuck in the box again.


S&P 500 Large Cap Index

There is something here for both sides - bears can claim we are making no progress and the market is tired, bulls can claim we are consolidating one of the biggest moves in history without giving too much back. I am ambivalent to both claims and frankly a bit bored of the market. We have news, everyone piles into a few themes that day based on 1 economic report. Then the next day we have the complete opposite news, and everyone piles out and goes into a new group of stocks. Just this week, one global forecasting group had a negative view on 2010 prospects, sending the markets swooning Monday, then the only pocket of good news I could find Thursday was another global forecasting group had better things to say about 2010, and like lemmings everyone ran back the other way. It is nonsensical but that's what we have. I don't think there is much to read into this market now; the volume is low and its just computers trading amongst themselves for most of the daily volume. Program trading now >40% of all volume... yawn.

Until we get out of this box, I find it relatively useless to be involved very heavily. I anticipate computers rushing into the market with guns abalzin' over S&P 950, and computers screeching for the exit below S&P 880. Until then traders and computers will buy the dips, sell the rips and we'll be stuck in the range, while everyone overanalyzes what the market is telling us. I have a very high cash position and I've made one small adjustment on the short side ... since its impossible to tell the theme of the week (reflation? consumer? healthcare? banks?) I've bought some out of the money index puts as a hedge... about 2% of the portfolio ($20K). Right now they are S&P 850s... if we have any big bang effect between now and the 3rd week of July it will provide some oomph; otherwise they will expire worthless in 3 weeks. Along with a massive cash position (the largest I've had) I am just stalking and waiting while trading around.

Reflation has taken a break for 2 whole weeks now, so I expect traders to make a go of it as hot money has been hanging in technology, healthcare and it appears of late consumer discretionary on its 89th rally attempt since late 2007. I find that simply amazing based on all the economic data coming out, on how hampered the US consumer is - but this is the playbook and people keep running back to it. Pavlov dog style.

We have a short week coming up but it is action packed - 2 more days before month and in this case quarter end... from my observations institutional money does not mark up on the last day of the quarter since even the SEC might catch it while not reading Harry Markapolos letters; it is usually in the 2-4 days ahead of time. So Monday will probably be the last run up on gaseous reasons, although Thursday was an impressive display and may be the main one of this quarter end. Economic data comes hot and heavy this week and as always, we'll knee jerk react to each one since 1 data point changes the course of history.
Case-Schiller housing comes Tuesday; for housing bulls this has been one number that has really not been showing 2nd derivative improvement, so after this number comes out look for folks to peel back any number of 29 layers to find any hope in layer 26-29.
Wednesday is really packed - ISM manufacturing; a very volatile number that used to matter more i.e. 20 years ago when we made stuff here. Now mfg is below 15% of the economy and falling like a rock. But we can still react like lemmings to the data. ADP monthly employment is here - remember if its bad its backwards looking and a lagging indicator - if its good, its a sign of recovery. You know the drill - buy stocks. There is more home data that day, as well as June auto sales - after a run rate of 16M+ cars sold a year, we dipped to a 9M run rate in the depths of the recession; expect to hear shouts of glee as we recover to 10M. Perhaps tears of joy as well - I mean the government has now allowed 0% financing again via their 2 government arms of auto making, to credit as low as FICO 620. In other words, almost anyone can get a car again - and government is subsidizing it via GMAC! Wait! Where have I heard that before - free money to almost anyone? Hmmm... But never mind the details - just be joyous that with terms at the level almost anyone can buy a car, that sale rates at 40% below peak years is now a 2nd derivative improvement. Who is subsidizing these 0% loans? You are. Just a repeat of what government is doing in the housing market.
Since Friday we are off, the monthly jobs report will be Thursday. See everything I said about the ADP report in point 2. Bad = backwards looking and not useful info. Good = see, I told you the economy is back, stimulus is working, Uncle Ben has saved us, et al. We'll chuckle at each other as we look at the birth death model and see how the US has created anywhere from 150,000 - 200,000 jobs YET again this past month in businesses too small to count. We'll cheer the new government and healthcare / education (quasi government) jobs, while finding glimmers of hope in other data. We'll buy stocks. We'll chop money trees. Rinse. Wash. Repeat.

And that's about it; just like any other week for many months in a row. Any news will be good news or told as such. Words such as backwards looking (isn't all data?) or already in the market will be displayed if anything negative dares emerge. Don't worry about the market really falling, the insistent bid saves us whenever a key technical moving average is about to be broken, and away we go... prosperity awaits, at least for speculators.

As you can see I am highly complacent, which in the old days meant the market was about to snap down sharply but these are the new days. I am waiting to be an eager buyer once we stroll over S&P 950. Until then, it's just a bit boring.