MARKET INDEX TECHNICAL ANALYSIS - MITA Message Board

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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA

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To: dvdw© who wrote (14452)	8/24/2002 4:05:27 PM
From: Killswitch	Read Replies (1) of 19219

I'm not sure you are right about mutual funds. From my understanding they are still quite weak. Coming into July they already had low cash positions, and then were forced to liquidate lots of inventory to meet massive outflows. Since then there has not been any significant net amount of inflows. So my theory is that they are still quite low on cash, and likely highly susceptible to further forced selling should further significant outflows arrive. They most certainly have little ammo to fuel more of a market rally from here. Who does have the cash to keep a rally going? Most institutions seem to already have finished rebalancing out of bonds, and as reported here recently are at all time highs in terms of their percentage amount invested in equities. J6P is still wary and unlikely to come back in large numbers just yet... and if the market/economy appears to them to be weakening again you can expect them to continue bailing out. Some foreigners may still be slowly bailing out, and could increase if $USD doesn't continue its recovery. Hedge funds and short sellers are all done covering and playing the long side, and aren't likely to want to push things much farther. In fact we may be seeing some selling pressure now from the ones that bought in back at the July lows. As far as I can see this rally was mainly technically driven (although I admit some companies were actually undervalued temporarily), and many stocks are back at valuation levels that appear unsustainable barring a quite rosy future for the economy. Therefore my thesis has to be that unless we see real signs of stabilization and growth in the economy soon this market isn't going any higher. If we see any further signs of weakening (just this week we had that nasty RadioShack warning, and further cuts and negative comments in the semi sector, plus WLI still weakening even with the stock market helping it) it is likely to reverse and possibly make new lows.

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