Stock Market Choke Points

part 4B

by Brian Stoll, TimingStrategies.com | March 28, 2008

From our last edition, our first long entry of 50% of account value in our Rydex EOD system was made in the indices basket at B1 on 03/07/08. The major premise for the allocation was a test of the highs on the local range of the S&P cash of 1380-1400 or ~138.00-140.00 basis on the SPY. I don’t like changing planned management campaigns on one day’s price action but I like even less making any absolute statements or commitments to market positions and their ultimate direction. The reason being is the simple fact that when one gets married to their position, more often than not they will end up being divorced from their money!

On Weds. March 26th we took ½ of the 50% long indices basket off for a remaining 25% long exposure, based on system divergence between the XLF, XLE, QQQQ and SPY. There are reasons and technical filters involved too numerous to cover in this brief update but suffice it to say, price action, typically, does not give the public a second chance to get in on a real bottom, this is a general rule and there are no absolutes. The March 17th/18th low was again another Fed manipulated/forced low and not a natural market low in my opinion. Incidentally we also bought the oil sector 10% on 03/20 in our Rydex EOD system and sold the full position on 03/26/08 and are currently short the bond market 10% from 03/24 also in our Rydex EOD system.

At this juncture a successful test of the1317 level on the S&P cash or ~131.75 basis SPY at a minimum, is necessary for consideration of reimplementation of a 50% position and as deep as 1280 at the green B1 level on the S&P cash or ~128.00 basis SPY, with a close back above the Fed reaction day low of 03/20, at 1295 on the S&P cash, without a breach of the 03/17 low would be more convincing.

Establishing a short position of 50%-100% from a low risk location, somewhere in the kill zone is ultimately the more desirable allocation or a 100% long position at the green B2 level at ~1235 S&P cash or ~123.70 basis SPY for a counter trend long is also part of the present scenario. At this time though, we must respect the current market range that has been provided for us to work with and use smaller position size until that range is breached. Simply putting on a significant short or long position blindly would be indignant of that current range.

End of the first quarter is almost here and new public fund inflows; along with institutional asset/sector rotation is a higher probability. Energy, material and commodity areas may see temporary rotation into the several financial related areas. (ugh!) While this may be a successful shorter term momentum rotation play, longer term it most likely is a looser as the trend in “stuff” is fundamentally and technically UP, while the trend in all of the related “dirty paper” is fundamentally and technically DOWN!

This is a bear market environment and the Fed/Tres. is hard at work trying to keep a near dead corpse i.e. the stock and bond market, alive, thru short squeezes and money printing. The sacrifice up until now has been the Federal Reserve Note or what used to be known as the Dollar, but domestic oil/food prices along with the developing world rebuking Wall Street’s and the Fed’s/Tres.’ credit /currency charade, has finally caused the laws of economics to be enforced. (Imagine that!)

This is not a recommendation to buy, sell, or take a position in any investment whatsoever, regard any information you may be provided here as you should all other opinions, with a healthy grain of sea salt! We manage money professionally and make estimations to the best of our systems and abilities, we will be wrong at times, that is a given, the key to ours or anyone’s longer term investment success is management of the shorter term risk.

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