Year: 2009

SH S&P short, and leaving something on the table.

Hamilton

sh march 3

In the institutional market where your counter-party invariable is that anonymous “the market” there is a certain protocol or guide-line that says that you should always leave something on the table for the next guy/girl. What is really meant is don’t get too greedy.

Looking at the SH, the inverse of the S&P index, it would seem to me that it is 10 to 12, or high time to “leave something on the table”. The count could be a clean 5 waves up with perhaps a few little waves to go. It is a double top and the RSI is reaching the 70% level. Perhaps the light is not yet on green, but it is amber!

XIU March2

Hamilton

XIU march 2

Many things can go wrong but so far the pattern has followed the script pretty well. We should hit a low (after 5 –waves down) in the next week or so. The minimum has almost already been reached at about 11, but it COULD still go lower to 10 or 9 1/2. Once there it is an almost certainty that we go back to at least 14; even 16 is within a 505 retracement and wave 4. This is a buy by any measure, the only question is how far you are willing to lower your bid without risking missing the boat. The HXU probable will not make it to 6, one may have to settle for 7 or so.

BRK unforced errors

Hamilton

BRK.A March 1

As mentioned on an earlier comment chances are that Berkshire has a little more to go, to more or less the 40000 level where “the fourth wave of previous degree” resides. The companies earnings dropped by a perfect Fibo 62% in the last quarter. An unforced error in tennis lingo essentially means an error that cannot be attributed to any other factor than poor  judgment and execution by the player. Hats of to Buffett for such an introspective mea culpa.

    This all raises the question if we are not , collectively, making a type 2 error by not rejecting a number of economic hypothesis that appear to be on very shaky foundations (and always have) such as the “efficient market theory” , diversification and other silly notions like “dollar-cost averaging” which is simple a tautology if ever there was one. Soon some of these will go the way of the dodo bird.

Chart of the Day

Hamilton

Chartof the day, inflation adjusted

The Chart of the Day is available just for the asking.  I have added a few annotations and lines as it illustrates quite well how this has been an ongoing bear market since ‘99. There is the usual a-b-c corrective structure and depending on what degree of cycle you assume we are in the market should hold at the horizontal line.  Things could get more dire of you make the assumption that the top we had was of a super cycle degree.

In any event the 10% real return over 40 years, on an index that is massaged to a great extent and not taking into account human behavior of buying high and selling low, and not making any allowances for 1.5-2% MERs, is pretty awful. Makes one wonder if stock returns are simple a monetary phenomenon.