Joined Oct 26, 2011
153 Blog Posts

November Trend Report

To not at least aware of the bleak picture with mutual fund cash levels as low as they are would be a bit reckless.

So we start with not just the “long term” but the “wake me up from my coma when I give a crap-Long-term”. That is the contrarian indicator that is useful on a multiple-year or decade basis. So we start with this in mind. If mutual funds have the power to fuel rallies, they have very low power when they hold little cash. However, this sort of behavior results in low volume needed to create big moves and for volatility to be at a high in terms of daily and weekly fluctuations. This helps explain why HFT accounts for so much of the volume and why the markets seem so batshit crazy volatile lately.

Batshit crazy I tell ya!

For now the August data is available
July 2011 3.3% cash
August 2011: 3.4% cash
They’re lagging a couple months behind but September data should be available soon I believe, ici.org should have it up.

Is there a fundamental reason to be bullish? on a long term basis? Well, if not for this being an abnormal cycle with coked up leveraged banking and sovereign debt problems we would be quite a few years into the business cycle. Since the full cycle lasts about 8 years, and 2007 was the top in at least the markets and arguable economic contraction started thereabouts, the next peak of economic expansion is potentially somewhere around 2015. However with that aside, I am going to need to see cheaper prices first.

So is there a reason? Not really…. At least historically there is a reason to be less bullish than usual. The 10 year trailing PE attempts to smooth out some of the volatility and identify value for long term moves. Right now it is neither undervalued nor overvalued, but more overvalued than undervalued if you look at stocks since the removal of the gold standard. If you look at stocks over the last 100+ years, it is overvalued. The 10 year PE is around 21, just above the mean of 19-20 or so since the removal of the gold standard, and above the 16.42 long term historic mean

Since this is not at extreme it really doesn’t mean a whole lot, plus it completely ignores treasury yields and dividend yields and growth rates so unless we know whether to expect multiple expansion or contraction or if it’s at extremes it’s not really important. With that being said the trend seems to indicate multiple contraction for the time being but that could change at any moment. I believe mutual fund cash levels is a much more ominous reading than the PE at current levels. In combination shit’s not all roses.

Let’s look at the charts.

Historical comparisons can be drawn to the following date/s based on monthly charts only

Bearish:December 2008, April 2000,Dec 1929 , And June/July 1937

Relatively Neutral: September 1981

Bullish: dec 1987,sept 1998

Some fit better than others. The RSI is not nearly as overbought like it was in 2008 or 1929. Although certainly closer, it is not even as bad as 2000 or even 1937 (although technically I feel this is the most similar) so we would not expect things to be as bad. However things are more overbought than the remaining. 1998 is similar however it lacks the 3rd month of increasing momentum. I feel the best comparison is June or July 1937. Observe.

I didn’t line the charts up exactly but you can see the sharp decline from overbought in the slow stochastics until it is lower even though stocks made a lower high. You see the 3rd month in a row where the MACD histogram was down, and 3rd month in a row the parabolic SAR was down. The RSI made a similar move from just/nearly ovebought to a lower low.

Sector Trends:

Utilities is the only area with a technical uptrend intact using the sector SPDR etfs. Even Utilities appears overbought though. Everything else is bearish confirming the long term bias to the downside.

The following represent decent fundamentals


Industries in a monthly uptrend: This section is under construction. Do your own research.

In down trends on a monthly basis it represents periods of, or anticipation of economic contraction, and flushing out the leverage. Cash becomes king, which is partly why aside from bonds, Utilities remain strong due to their strong cashflow. However

Sorry to shit on your Europe haircut party…

…where everything is solved or so is the hope but reality is as long as there’s 1 currency yet multiple bonds for each country, it remains to be seen whether this will be a powerful enough event to change the long term trend. I doubt it.

(don’t ask me who that asshat is with the shit for brains haircut, I don’t know)

Like in 1937 I believe we swirl down the proverbial toilette(sic) and wipe the smug look off of the perma-bulls. However, we certainly may rally and retest the boundaries of the trend in the next couple of months first but I do not think we break through.

The trend report is not to discourage you from day trading or swing trading, but it is to make you aware of the longer term picture so that you can make subtle adjustments either holding larger or smaller amounts of cash where appropriate and/or reducing position sizes or adding stops and moving out of the way of buying the dips as aggressively, to avoid August 2011.

I didn’t have the luxury of having my own blog on a premium site like IBC or even a PG lately so I posted here.


Sorry unless you were part of the few dozen viewers or whatever the fuck, you missed out. My bad, you trailer trash turds, now quit jacking off to the batshit crazy picture of Britney and go do something useful with your lives. And slowing people down on the way to work trying to change the world by holding up stupid ass signs no one cares about doesn’t fucking count…. Unless you’re this guy… Fly is that you?

In conclusion for the 2 people who got this far and are still reading, shit is probably going to hit the fan sometime within the next few months, Adjust accordingly. You probably won’t though… 6-8 months from now you will all wonder why the fuck you bought the last dip before stocks went 20% lower.  I will keep you updated to let you know if the trend changes, but for now the long term direction is lower first. Buy the dips at your own risk, or else the space alien magician might harvest your organs and eat your brain for an appetizer while screaming “ack, ack, ack” and Netflixing Whitney Tilson.

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  1. The Fly

    very thorough. Good to see you blogging

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  2. hattery

    September cash levels jumped to 3.9%

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