Created on: 5/24/2011 8:58:46 PM Last Update: 5/24/2011 9:08:58 PM Posted by: RTT
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Those that must be long the stock market are bearish (208)
Some of the largest players in the stock market game are the mutual funds, and most of these funds can only be long (that is they cant short stocks). When these type of funds get bearish and need protection they will either buy cash, bonds or defensive stocks. How aggressively they do this can be very telling.
Within our website service we have a custom symbol called @RTDEF or SPDR Defensive sectors. This is made up of the equal weighting of defensive SPDR sectors namely Health care, Utilities and Consumer Staples.
To determine if more monies are flowing into defensive sectors we find the relative strength of @RTDEF versus the SPDR SP500 symbol SPY, this is simply dividing @RTDEF by SPY or our symbol methodology is @RTDEF::SPY. See the chart below.
@RTDEF::SPY = Relative Strength of Defensive stocks versus the SP500.
Currently the relative strength of @RTDEF is very strong, showing the fund managers are very worried. The SP500's meager rally since the Japanese quake is not trusted by the professionals (I wont say smart money, as mutual funds under perform). Maybe the big elephant in the room is the ending of QE2 (quantitative easing by the US Federal Reserve), or is that earnings have peaked, or maybe the European debt crisis or maybe the Central Bank of China raising interest rates and bank reserves.
The action by the fund managers is fitting well with our latest SP500 cycle view.
Keep an eye on your portforlio over US summer, it could get wild. Get time to buy VIX calls.
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.."I have yet to find a man, in or out of Wall Street, who is able to make money in (markets) continuously or uninterruptedly. Like anyone else, I have good and bad periods."..
Richard D Wyckoff
..The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell"..
My experience has been that in successful businesses and fund management companies, which performed well over the long-term, some courageous decisions were taken. Courageous fund managers reduce their positions when markets become frothy and accumulate equities when economic and social conditions are dire. They avoid the most popular sectors, which are therefore over-valued, and invest in neglected sectors because being neglected by investors they are by definition inexpensive. The point is that it is very hard and that it takes a lot of courage for a fund manager to avoid the most popular sectors and stocks and to invest in unloved assets. Finally, every investor understands the principle ‘buy low and sell high’, but when prices are low nobody wants to buy.
..“The main purpose of the stock market is to make fools of as many men as possible”..
..“If it’s obvious, it’s obviously wrong.”..
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