Putting the pieces together...

Breakout

In uncertain times...

As a followup to the last post, I offer this alternative to the very difficult task of timing the market. There are times when the future is clearer than  at others.

But in a sense "uncertain times" are most of the time. Whether we can reliably predict the future is arguable. However we can decide NOT to presume to predict the future and instead to ride the coat tails of some others who have proven ability to hedge the markets and come out on top decade after decade. And that's what I'm doing right now.

Here are five US mutual funds which can do this, and all in different ways. I would recommend studying them via MSN Money Funds (http://moneycentral.msn.com/investor/research/fundwelcome.asp?Funds=1)

or FastTrack (http://www.fasttrack.net/INDEX.ASP) and other internet fund sites. Each is carefully selected by me for my own use. Each is different from the others. In several cases I have listed two versions: one is a load or retail fund and the other a no load or institutional version.

These five funds are the core of my long term  investment portfolios. The first four I have owned for years, the last one more recently. They are supplemented or "flavored" by ETF's and a small number individual stocks: HSGFX, DODBX, SGENX/FESGX, TAVFX, PASDX/PAAIX.

These have all demonstrated an ability to survive and do well during the wild bull and bear markets of the past decade and before.

As always, these are my choices for personal use. I don't work for them or anyone but myself.

If you're wrong, admit it and go on

I have been very cautious and have been hedging my portfolio short since late last year.  I live off my net worth, so net worth insurance is at least as important to me as car, house, and medical insurance. But I don't  have to pay for portfolio insurance forever as I do with the others. I  can reduce my premiums payable selectively.

Some people get so devoted to their own opinions that they are impermeable to change. And they lose a lot in more ways than dollars. If your ego is more important to you than  money, enjoy your lonely and penurious future. For me money is just a way to live and enjoy my family and life, not  an ego game.

So I have been lifting some hedges the past few days. Mind you, I have been about 50% in  cash with the portfolio almost ideally hedged, and even so I am ahead a few percent on the year overall. So I had and have now the cash to act when I preceive I have been  "wrong".  And I don't consider sitting out a dance being wrong. I know too many people who lost their wealth and families by ego mirroring.

I might even be wrong now in  lifting hedges and therefore being more aggressively net long. But I won't be wrong for long, since I refuse to take big hits.

This stuff is more important in the near and long term than "nailing" a high or  low or  the perfect investment or penny stock. This probably won't appeal to people unless they are over 40 or are unusually astute. Long term compounding of interest and capital gains is the key to investment survival and growth.

The chart shows the lime green line coming up from the exact 1982 low through the 1998 low. It was resistance in January, and we closed right on it today. If we close above it on a  weekly basis, we are off to the races. I'm leaning that way now. The economic situation remains strong and so does monetary direction. Corporations are stressed to deliver product and have fat balance sheets. Buying new capacity is getting more expensive. Capital  spending to expand  may be more profitable at last  than buying competitors.

The full moon eclipse crazies have been out in force this week. A lot of people are very susceptible to full moon lunacy. That's a fact. Visit popular internet investment chat sites for details this week. So weeks like this are challenges to trends and beliefs.

Gold follow up

See the February 26, 2006 post for earlier comments and references. Both the continued direction of the Gold/XAU ratio and the downcross of the MACD of Newmont/American Barrick ratio confirm that this isn't a good time for gold stocks. If one is a trader it would have been, and may still be, a time to be lighter on longs, or be short, or hedged. Or to weight more heavily  toward the hedged gold stocks of which ABX is the prime example.

Personal preferences and portfolio considerations vary so much that even an investment advisor, which I am not, cannot give ideal suggestions for everyone.

If  one has been waiting to buy or add on to long gold stock positions, one can begin to plan how to do that.  Some people prefer to buy in gradually in small increments ("scale in"); some like doing the same only on big  down days; and some want to wait until they get reliable buy signals to begin  buying. No one can say with authority when the buy point will come and at what price level.

Sentiment "Divergence" in Stock Indexes

One reason for current "divergences" of polling sentiment indicators versus flow of funds sentiment indicators is that this is a developing transitional period. The 2C Sentimeter (five day running total of daily VXO times daily CBOE P/C ratio) in 2005 shows the normal progression into a high leading to an intermediate term (1-4 month) correction in a bull market. The 2CS numbers get smaller into the final high showing a building up of bullishness.

Normally the sold out lows that result are also showing upward shifting, however October 2005 made a higher low price than May's low but sentiment was more bearish. It's counter-intuitive to customary sentiment analysis, but this October divergence shows that longer term sentiment is losing bullishness.

Then we see that, on successively higher peaks from December to February, bullish sentiment is diverging at highs as well as at intervening lows.

Thus longer term trend bullishness is waning both at short term highs and lows. Some trend followers who have been correct are gradually bailing out progressively since late July 2005. We are still getting very short term sentiment extremes, but they are just a bit less extreme. This sort of divergence is always confusing to sentiment analysts as we do not ever expect to see contra price trend divergences in sentiment.