The fact that 2cs never really got into the 70's for more than a half hour on October 16, and not ever on end of day, means this is a weak market for a while....probably at least a month. But there was also exuberance on October 16 in the volume indicator I use.
I was already into gradual cutting and pruning as detailed here, and I continued that last week. Finally I bought some SDS (double short SPX) last Friday.
The point of this is that I don't sell and reverse at a specific minute in time when everything lines up with a light in the sky. It's a gradual process of increasing probabilities for a change in trend. At tops some things get sold ahead of the inflexion point and some afterwards. In that way I am never too far wrong if the market fails to reverse. There is far less anxiety when all you have done is take some profits from the previous move going ito the top window and are waiting for confirmation to go short or just stay flat.
A lot of what I have left are the various hedged funds I have discussed here at various times: LSC, HSGFX, FPACX, TFSMX, OAKBX, HSTRX, PAUIX, etc. plus very long term hedges in gold and believable (proven) "all season" funds like PTTRX and VFIJX and some SDS for proper "flavoring". Cash is nearly 20% after being under 5%, so I have ammo for small game when they appear out of the bushes. Since cash truly is trash from an income basis (thanks to the FED) I'll have no hesitation in spending it on good causes.
It's not exotic or heroic trading. It's very pedestrian and boring, but it works for this retired investor to maintain a very good existence and to defeat the evil forces of inflation and taxes. OK, I'll admit it. There is a wee bit of drama in it.....;)
Tom,
Your first paragraph is somewhat unclear to me... even though 2CS did not go under 80, you still expect a weak market?
Thanks, Joe
Posted by: Joe | October 28, 2009 at 07:07 PM
Joe, I made a judgment that 2CS dipping under 80 early on October 16 was a valid market topping signal. It was corroborated by extremes in my volume indicators on the same day. I didn't make all of my portfolio changes that very intant, of course. Some were made before and some after while waiting for cornfirmation.
Even yesterday I wondered if we might get a run to the highs again, except now it would take weeks to get back to 80 on 2CS. Take a look at Terry Laundry's chart for some idea of where I think SPX is going. I haven't started looking hard yet as there is still time for more shorting or selling. But I would guess maybe 930.
http://ttheory.typepad.com/files/latest-t-theory-chart-and-data-8.pdf
Tom
Posted by: Tom | October 30, 2009 at 09:12 AM
Thanks, Tom. Now I get get it. I know I'm slow. I mean we are just due for a 10%+ correction after the big run up to get sentiment extremely bearish again and ready for another take-off.
On another note if you look at long-term cycles we are currently still in a deflationary period for about another year. The only thing is deflation does not take place and all indicators show raising inflation. My best guess is that the government / FED are mitigating the deflationary pressures so successfully that it just does not happen, at least in the general economy. Individual markets can still deflate, as rental rates do right now for example. I could have gotten a clue from the 1981-1985 period when the effects of the agro bust and the super dollar were successfully mitigated. I guess.
Joe
Posted by: Joe | October 30, 2009 at 10:08 AM