Words before 9/21 FED

Call me Evil because I am. There is no QE3 on Jackson Hole, and market rumored about a new FED activity on 9/21 FED meeting. Where we are? Do we need a new QE? Will there be a new dose? I will provide a detailed report later. Let me quickly jump to conclusions for now.

1. The US economy is in terrible shape.
2. We need some kind of cure but a QE limited in capital market (as we had, twice) will not help.
3. Will we get anything good tomorrow? NO. You think the Euro zone crisis started last night? You think Greece started to struggle recently? You think Italy is recently added to PIIGS? If your answers to all above are Yes, then I have to say you are screwed. Why existing issues got amplified recently? Because our friends from DC and NYC need us, general public, to switch gear. A resolution is due but they don’t have anything yet. What to do now? Somebody just find some more creative ways, such as pressing the Euro crisis button. By burning euro down will not do anything good to our economy, except to increase the value of US dollar on comparative basis. Are we in bad shape? Yes we are. But the rest of the world is even worse. On comparison we are still OK. We are forcing those surplus nations (actually I mean China) to keep on buying Treasury products. Gold and precise metal market is not big enough for them, and oil will tank on the rise of $$$. Where can they go?
I don’t think we will get any easing tomorrow simply because we are already in one. They will keep those wording to maintain the imagination / expectation as topping/dressing. Nothing more. If you ask me, it is all preset deals, it is all conspiracy.

Low Maintenance Portfolio, Ivy-like (1)

Back couple years ago, I worked with a guy whose name is COB. Other than our day time job of playing around with derivatives, we had bunch of discussion on how to handle our 401K investment. We are not trying to time the market or anything like trading, but rather, we want to find a more systematic way to maximize our return and avoid major drag down. Since life is already very heavy to us, we cannot really afford a lot of time and effort of watching the market, reading the news, drawing the charts, blahblah. We came up with some idea of so called “Low Maintenance Portfolio”. Our requirements can be summarized below:

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• Contains only Short Term bonds and Equity, which are suitable and available for all 401K plans, other retirement plans, and all full scope investment portfolios;
• Bonds are considered “out” mode. If there is any doubt, we will get out of risky asset classes and park in short-term bonds. Since we are not really investing in bonds, but rather take it as safe haven to avoid drag-down or high risk, long term bond or high yields are not that attractive to us;
• Equity allocation will need s little bit further work to determine category, such as market cap, international or domestic, and industry;
• Monthly allocation, usually at month end;
• We started using GS estimation of GDP as our trigger for in or out decision. Later I expand the criteria to moving average.

How are we doing? I successfully escaped in late September 2008 (which is actually the trigger of this study), exit again in July 2010 and July 2011. Yes I have 4 years of double digit gains in my 401K, the 4 unforgettable years. Clearly this way works. What we need to do is just to refine a little bit.

Couple months ago, I read a book, “The Ivy Portfolio”.

It discussed a lot on how those Endowments Funds of Yale and Harvard are structured and maintained. Those Ivy schools’ Endowments are famous for professional management. People are claiming of “Equity-like return with Bond-like volatility”. Yes, this is what I am looking for.

-- To Be Continued

Jackson Hole 2011

Couple months ago, I out together a chart on the roadmap (of how the US is dropping into and staying a hole)

http://readingtowin.blogspot.com/2011/03/whats-next.html

Now QE2 ended. Now the market is talking about QE3. Will history repeat? In my Behavior Finance class, I learned it's human to make mistakes; it's human to repeat the mistakes; it's human that nothing changed in the past couple million years.


Here is my updated chart. US market is not closed yet. SPX is currently defensing 1210.
add: I feel I need to add today's market action into my chart.
Dow recorded largest drop since Dec 2008.
SPX: largest drop since feb 2009.
We now back to nov 2010.

God bless America!

On Economy

I found something interesting on web. I want to document it here for future reference.

by ocassional observer » Wed Jul 27, 2011 4:05 pm

john hussman has a list of conditions that have preceded or coincided with recessions 100% of the times:

·         10 yr treasuries below 6 month ago-V,

·         spread 10 yr-3yr bonds smaller than 3.1%-V, 

·         ISM manufacturing under 54-V,

·         nonfarm payroll growth less than 1.3% from a year ago-V,

·         a widening in spreads between corporate and treasuries from 6 months ago (i use barron's confidence index instead)-V

·         and the last- equity markets lower than 6 months ago- on the verge.

Here is the website of John Hussman. I am going to do more research on him and his study. In general, I like his ideas.

Today, ocassional observer posting another interesting post.

I would like to point your attention to a little followed indicator called the credit suisse fear barometer. a peak in this indicator as led every peak in the market by ~7 days since the beginning of the year. it has recently confirmed an intermediate top by falling dramatically as the 6m graph shows.

a 5y chart shows that we are at heightened levels similar to the one that preceded the bear market start in 2007.

i believe a break down of this indicator below the 20 level will sign, together with the economic indicators i mentioned at yesterday's close, and what i now believe is a confirmed dow theory sell signal from the beginning of july, the start of a bear market and a coming us recession.
the indicator is updated daily at bloomberg several hours after the close:http://www.bloomberg.com/apps/quote?ticker=CSFB:IND
a definition exist there as well.

Again I like this idea too. I will keep on monitoring this indicator for further analysis and application.

Applemania

I am not a fan of any i-crap. No java, no flash, no silverlight, no USB, no SD, no nothing. What am I going to do with it? Anyway, the market is full of idiots eager buyers / fans of Apple products.

I do like the chart of AAPL. As a matter of fact, I bot the stock on 6/22. Well, I have to admit it is some kind of lucky.

 

My projection from 6/22 stated a target of 377, which appears to be toooooo conservative. I currently read a flag breakout (@362) and raise my target to 420. If the ER is good, we may see it very very very soon.

Good luck and Happy trading.

SPX

So far the ABCD pattern on SPX played well. I see an immediate target at 1325 before next week, which is OE.

USD and SPX

I expect some kind of bounce of USD then a break down of the bottom trend line to mark the end of 5 waves on weekly. The low, however, should not exceed the bottom setup in 2008.
After that, USD is going to have a LIFE. Well, I have to admit, it depends on whether we are going to have a QE3 or same kind or not.

SPX is on the opposite.  I see an a-b-c broken down rather than a 5-wave. Thus I think there is good chance the A=C pattern will play out with a target of 1270-1275.