Pre Flight Fund Trader for 2/1/02
Thursday 1/31/02
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Real Money Seasonal Trading Account (New! All weightings are approximate)
80% Money Market
5% HGMCY (Harmony Gold).
15% Rydex Tempest Fund.
Buy another 15% position in Rydex Tempest Fund, IF the SPX is not down >7 points at cut off. We will buy early as we were unable to purchase the additional position today..
We are a little bit short and we hate dealing with the bounce, but the trend had broken and the market could easily have fallen out of bed. We'll add this position if the market rallies. We won't be pigs, however. Harmony Gold, as we thought, has shrugged off any weakness and is flying more. It may be time to take a profit.
Our managed tracking account is up 16.98% for the 18 months since June 30, 2000. This is a very conservative approach (~1/3 the risk of the market), using both long and short funds as well as the occasional favored sector/stock idea. All performance is net of fees, commissions, and interest. Your results may vary, and standard disclaimers may apply. We DO use discretion. For further information, call us now. 
Active Model
Bot 33% Profunds Ultra Bear 10/2.
Bot 33% Profunds Ultra Bear 10/3.
Bot 33% Profunds Ultra Bear 11/15.
The market is driving us nuts, but the trend has turned. We have committed, perhaps foolishly, to holding this one. Cover all positions if we print 1065.
Hedged Model
50% Waterhouse Dow Fund (WDOWX)
25% Profunds Ultra Bear
Watch out for a memo. We may increase our Ultra Bear exposure.
The MACD is negative, and the Weekly MACD is negative. The Seasonal Cycle is positive, but now less so. We are Bears.
VIX Trader
Flat.
Sold 1/2 position in Profunds Ultra Bull from 1/16 a/o 1/31.
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Last time, I said that I expected things to be very volatile and that the shortest trends were all up. We had to think that there might be a bit more buying, but I was convinced that the speed of the sentiment recovery boded ill for the market's future. My call was for the lows to be taken out by next week. 
The market has a bit more punch that I'd thought, and while I'm less than sanguine (alright, I'm nervous) about that call, it really isn't all that unreasonable.
The sentiment measures I look at show a very quick acceptance of the rally. Worse, the AAII (American Association of Individual Investors) sentiment poll shows a JUMP in bulls and a DROP in bears even as we declined this week. Do these people think that they've found the "key to the lock", and that the only trick to making money is to buy dips?
The way I see it, we have rallied very hard, very fast, without too much pessimism having been built up on the decline. It's almost as if everyone was just waiting for it so they could buy. In my experience, the market rarely makes it easy to buy when you should be buying. If the "Average Joe" is finding it easy to be bullish on this last decline, then I have to think that he's going to get a rude awakening.
I don't want to get too "beared up" however. The market has rallied above the 50-hour moving average and that is bullish, as is the dramatic improvement in breadth. In fact, our favorite breadth indicator, the ITBM (see our terms page link, below) has given a buy. That said, I've found that the first buy from the ITBM is rarely a good one. We also need to remember that yesterday was the last day of the month, which is usually pretty strong, especially if the big institutions want to make their client statements look good. The 50-day moving average is just above us, and I am incline to start shorting there. For those who are more nimble, however, it makes sense wait for a turn down and then chase the market if you have to. No matter what, any artificial upward pressure will come off after today, if the buying isn't already spent.
The way I see things is that not much has changed since the decline, except that optimism has been very quick to return to the market. I smell a rat. This may be the positive part of the Seasonal Cycle but I find it difficult to believe that rampant bullishness will be rewarded. If we step back and look at the market we'll see that the weekly trend is negative, as is the Daily trend. Simply enough, the trend is down. All the market is doing is testing the break down. 
I still expect the recent lows to be taken out. Thereafter, I'll allow for perhaps a very steep rally into tax time or thereabouts.
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Technical Review:
Coppock Breadth Indicator:  Sell. The CBI was up 0.3 to 190.7, 0.2 above the exponential. 
ITBM: Buy. Unconfirmed and suspect.
Seasonal: Positive
VIX: Nearing a Sell.
MACD: Negative.
Weekly MACD: Sell.
If you have questions, call us.
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Mark Young
Steward Analytics, Inc.
513-232-0700http://www.traders-talk.com/PFFT/instruct. html  http ://www.traders-talk.com