Tuesday, July 13, 2010

The Problem With Portfolio Managers (2)

As I have said before – for the most part, portfolio managers are all the same as they all fear something. They fear the markets are about to collapse and yet they fear not to be invested. That is because they fear the markets may advance without them on board. In order to defend against a falling market they all own some gold and they all over-diversify. I recall Warren Buffett saying that "Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing."

So here we are, into a rally following a nasty correction and the question is do we move on to new highs or do we bail because the worst is yet to come. We all know what the portfolio managers are doing. They all own some bonds, some gold and perhaps an inverse product. Their objective is to have equity exposure - but not too much, and so if the market declines they won’t decline as much. The inverse is also true, if the market advances they won’t advance as much.

Which way do you think the equity markets are heading? Our chart is the weekly bars of the Phix SOX Semiconductor Index plotted above the S&P500. The studies are the 40-week MA, the Coppock Curve and the lower study of relative analysis MA. So what do you think about the outlook for the equity markets - and why?

4 comments:

chrispycrunch said...

Hedgies lost a bundle in May and June. 25% net long, I believe.

scseverin said...

Outlook is bullish due to: strong long term buy signal generated by the Coppock curve, support held at the 200-day on the SOX and the continued outperformance of the SOX (leading sector) relative to the S&P. In addition, the SOX has posted a higher low (Feb low) relative to the S&P that posted a lower low. Did I miss anything?

scseverin said...

I think the outlook is bullish for the following reasons: the strong long term buy signal generated by the Coppock curve in early 2009, the relative outperformance of the SOX (leading sector) vs. the S&P 500, the posting of a July higher low by the SOX vs. a lower low by the S&P (SOX positive divergence) and the fact that the SOX has held support at the 200-day MA. Did I miss anything?

原秋原秋 said...

I have nothing to offer but blood, toil, tears and sweat..................................................................