Tuesday Sept 18 2012 6:00 AM CST
NOTE I sold virutally all my positions this morning. This is a run down of why. I answered one reader post below with additional reasons. As I said in that response, I may be early but at least I am early with a large profit. We can buy positions back after all.
Worse, your brain-processor may be making serious computational errors comparing the new and the old. One of America’s leading behavioral-finance gurus, University of Chicago Prof. Richard Thaler, explains why: “Think of the human brain as a personal computer with a very slow processor and a memory system that is small and unreliable.” Thaler admits: “The PC I carry between my ears has more disk failures than I care to think about.”
An interesting article on trusting your 'instincts'
Mark Hulbert quotes a Value Line Analyst for 1500 by February.
I would agree with this article which suggests all we get from QE III is higher stock prices, more speculation, not more hiring.
An old Wall Street adage has it that you should 'take your half out of the middle.' This idea is that one waits for a bottom to be established, then buys, and then exits before a frothy top.
Since June we succeeded at buying low, now the tough part, judging when to sell high. We are sitting on very nice profits. Stocks are the highest since 2007 and commodities have made nice moves, some are just now breaking to the upside like REMX others have just cracked their 50/200 day MAs like GDXJ.
I just cycled through my 30 some odd internal indicators. Note that yesterday afternoon I re iterated my comment from the weekend that the market could certainly pull back here. Here are some of my concerns.
Daily New Highs to New Lows
Our reliable summation indexers for the NYSE and NASD have not toped out but take a look at
NYSE A/D Volume.
As Mark Hulbert notes in his column above this has been a tremendous, indeed, historic rally. This was a huge run of 5500 points. If it turns out this is THE fall high in this indicator,it is telling us to expect lower prices this Fall. Perhaps we should take a longer look to as we say here, put this in Perspective..
Weekly NYSE A/D Volume
Here is almost three years of data on a weekly chart. I have tentatively labeled a potential head and sholders topping formation. Note the lower highs in the middle of each year (more or less) as this indicator has climbed to its present point. What we have to ask ourselves, is it really worth it to hang around as far as these indicators have come? I am suspecting the answer is, no. Take the Money and Run?
NOTE This indicator is turning down just as it did in February, on daily and weekly of course.
Weekly Volatility Index
AS with the A/D chart above, is it realistic to keep hanging around here? Note that the weekly VIX is starting to make higher lows, not dramatically but they are there. Let's move in for a closer look!
I have not drawn any other indicators here so that you can see the action for yourself. The VIX, so far, is making a higher low in September than in August. Note the confluence of MAs at 18.
I am reminded of September 1987 when things got weaker after Labor Day.
Do we have signs of bottoming in the dollar and bonds?
The US Dollar
the Dollar has re traced 50% of its move up from the August 2011 low. We have looked for a pullback and we got it. The RSI at top and MACD at bottom either are at lows or are approaching points where one would look for a buy signal. Longer term we believe the Dollar is in a bull market. At this point that thesis is re inforced in that the Dollar is making a higher low here. Notice how long it traded between 78 and 79 ealier this year, there is some support there.
Bonds versus GDXJ
I am long GDXJ and short TLT, still a good idea? This ratio chart suggests the ratio has returned to a longer term uptrend line, connect February March with where we are now. And of course February was a high in GDXJ!
TLT versus Stocks
Here we have the same thing again, are these ratios of TLT to gold stocks and TLT to stocks in general making a higher low? RSI in the bottom panel is arguing for just that.
I just looked through each of my holdings and they have had nice runs. In many cases the RSI is over 70 which is sign of top market activity.
We have very very nice profits. It is quite difficult mentally to see them evaporate even believing the markets may make one more high this fall. I admit to becoming a bit giddy last Friday with all the nice profits piling up. That is why I took a very long look this weekend and again this morning.
Investing is a percentage game. One can only attempt to buy when others are selling and vice versa. All the indicators that suggested buying in June have now run to, as we say here, the other end of the hourglass.
Let's take profits on these positions.