Saturday, January 10, 2009

Portfolio Theory $DBC $EEM $IWN $IYR $PLW

This week's look at the 5 least correlated liquid ETFs.
After a hefty rally, commodities have resumed their fall, and DBC remains in a massive downtrend. Heed the words of famed economist and failed trader John Keynes, "the market can stay irrational longer than you can stay solvent."
Momentum in emerging market's waning, and the bounce in EEM is beginning to look like a dead cat. Perhaps the fiasco at Satyam is just a glimpse of the Madoffness abroad.
The small cap value sector suffered a failed breakout and has pulled into support. Although the IWN technically remains in an uptrend, nearly 40% of this ETF is allocated to financial service, so it's fragile and may be a short.
As mentioned here last week, real estate remains in danger as the IYR is ready to touch the lower Bollinger and retest the recent bottom. The selling this week came with increased volume, so buyers beware.
Bonds remain in a massive uptrend, and though I made some nice coin in TBT, now is not the time to be short the US Government. Though Treasuries are Ponzi up the Yangtze, nobody seems to care so long as the trend is up.

A century ago, a fellow asked the banker Pierpont, "what will the market do?" and the elder Morgan replied, "it will fluctuate." This timeless quote, along with "it will open at 9:30 and close at 4:00," underscores the absurdity of predicting the future, and the importance of adapting to the market environment.

The markets propensity to fluctuate, neatly described by the VIX, is beginning to rise and that poses a significant danger to nervous investors. Moreover, the selling on Friday was strong ~9:30 and ~4, suggestive of a broad desire to GTFO. If you're looking for a tip, take your money, put it in a MMA, go play with the kids, and come back next week.

That said, how about a gap up on Monday to make some bears shit, and then a fade to lows below Friday to demoralize the rest? Volatility is rising and the market will spoon feed excrement to those who fail to adapt. We are entering the fifth wave, assume the position.