Bob Pisani actually said something I agree with. Sometimes the market is on treacherous footing and it just goes lower. There doesn't have to be a clear and obvious reason for the action specifically today.I have been in the camp, after the initial hit two weeks ago, that volatility is back and we should probably expect more downward action.
A normal correction, and we still have a ways to go for that, seems like it has a high probability but no greater probability, IMO, than it had last week.
8 comments:
I remember this remarkable picture!
Roger, I noted (only because I have FXY) that FXY started to increase and the market went the opposite way. In addition to the subprime market, I believe that the unwinding of the carry trade has taken an eery softpedaling by our friends in the media.
And....speaking of our friends in the media, there is no @$%&@$%&@! way that they have been on top of this. They (CNBC) have been dismissive of anyone who has talked contrarily about this issue. Oh Lord, I'm venting. I'm sorry.
Your post recently about having a strategy was very important warning to your readers.
TomK, are you there? I'm smiling, and I know that you are too my under-invested (like me) compatriot!
There's a saying in economics that price changes occur at the marginal price, or last price transaction. That's why subprime loans affect the whole market. Also, all levels of mortgages are feeling higher default rates, not just subprime. Why? The salesmen in the mortgage and commercial lending business are all competing with each other to produce volume of loans. All standards in all markets were "relaxed".
Central banks in China and India and all over Europe are raising interest rates due to inflation, which is shrinking easy money liquidity. Hardest hit will be EM stocks and funds - always true, never fails, in times of reduced lending.
I'm very Short both US and especially EM funds, more than my long exposure by factor of 2X. I'm planning on making some money the next couple weeks/months. That was my plan, albeit somewhat risky one. OldVet
I think Roger hit the nail on the head - expect more volatility. Who knows, we could be up 3% tomorrow.
My timing model hasn't changed since Friday but I'm waiting for Goefert to post his intermediate model scores for eod. His Smart/Dumb money model is very close to OS territory - which would tick my model up to a score of zero; 50% long.
Also, the Value Line Arithmetic Index continues to zig-zag through it's 75dma. So even on an intermediate basis, one could easily argue the unweighted broader market is still in an intermediate uptrend.
As bad as the market looks on the surface I take solice in the fact that the sentiment indicators are rapidly begining to indicate over-pessimism, while at the same time, most market indexes are still a good ways above their 250 day moving averages. We could be getting closer to a sweet buying opportunity.
TOMK, are you open to sharing your point sytem for ranking? I'ld like to try to adapt it into software for back testing. Of course, the timing system is a separate deal. I can do multi roc (alpha) periods....four of them...and weight each one. Weighting can then be optimized. I'm using Monocle Systems. (Curious if anyone has experience with this software....small company and been around for quite awhile.)
Hi Leisa...i'm a cara reader, and I might say mostly cash, but I defer to Tom about direction of the market. For me I rather risk loss opportunity, always trying to balance risk reward. At resistance levels I back down and wait for a higher probability of reward. Would love to get back long ....Jasper.
I guess the market DOES fluctuate.
Damn it.
The scam market cost me over $23000 in value to disappear from my online account balance..wtf happened to cause this bs...I am pissed...
Reluctant to post twice..but,I finished a read on two detailed reports of the credit card industry. They make sub-prime mortgages look like AAA Bonds.
Jasper, you probably noticed I rank US and Intl separately and allocate long positions by U.S., EAFE, and Emerging before I select individual sectors/countries.
My U.S. sector model is primarily momentum based, but I do use a few additional inputs. This will get you very close to the same results:
Every week, sum the 90, 180, and 252 day ROC for each underlying index of Profunds Ultra Sector funds. Also include the underlying indexes for MLPIX, MGPIX, SVPIX, SGPIX and IWC. You should end up with 24. I think weighting opens up potential for data-mining - I don't think it's necessary or will lead to better results in real time.
One thing to note is some of these funds are sub-groups of each other - Financial-Banks, Technology-Semiconductors. I usually try to avoid holding 2 highly correlated funds unless I have a high percentage of long positions. Another thing to note, the number of sectors/positions I hold is determined by my timing model. I generally try to keep each position to approx 5%-10%.
For your test, I would hold Profunds for the top 5 ranked sectors each week. Profunds can be exchanged within the family without incurring commission. You could do this once a week, but I would also try 2 weeks.
For International exposure use iShares ETFs. Again, you'll run into some of the same issues that require subjective decision making: Region, country, high-correlation contries, etc.
To minimize trading and commissions, use this approach. Buy when an ETF climbs to a top 8 rank, sell when it falls below 15. This will prevent overtrading.
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