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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: jtech who wrote (42575)	10/10/2002 8:33:46 PM
From: LastShadow	Respond to of 43080

Short FundPilot column not posted to the website: I have had a bit of email from people sitting on positions that are down since entry. I have recommended staying in many of them, and I would like to share the reasoning for that. First, word in the industry is that Fidelity is preparing to undergo a large staffing cut, and I have not been able to find out from my inside connections, whether some of those funds analytical staff, or what management changes will be made. Historically, and it hasn't happened since 1987, when a fund makes cuts, it throws their fund management process into an upheaval. The last time Fidelity instituted had cuts and a new procedure they froze most funds to entry, even for existing clients and retirement accounts, and did a variety of other things. Exiting ahead of that may prevent one from reentering those funds. Being that they are all good performers and excellent buys, I also hesitate to recommend exiting. The second reason is that when I look at the larger economic forces in play, although there is a lot of uncertainty, we are in a bottoming period. What that means is that if a recovery restarts, and this may take a month or two more, many of the funds followed are well positioned to take advantage of the earlier growth markets. Additionally, many funds have substantial exit fees, and limit the ability to reenter within certain time frames. The reason being able to enter now is important brings us to the third reason. The "smart money is going bullish. By the smart money, I am talking about the commercial traders of the S&P500. These people are required to report their long or short positions in the market every week on Friday, and theoretically they are the biggest players in the market since they are 'ahead of it' - logically, you could not continue in this area without a lot of analysis, tons of sector and sub sector and leading stock reports and analyses, as well as a goldmine of information to ferret through. If you didn't get it right you would be playing here long. Although the recent numbers look a lot like the rest of the market opinions, but there is one important difference right now. The short positions are being exited in droves. Historically, if you look at the charts that plot this, you see the short positions being taken just before every major decline. So now, instead of this group staking out a huge net short position, they are busy going long in a big way. They are betting on a double bottom here, and a big rally. Although the commercial traders are still net short, they are actually in a larger net long position than at any other time in the bear market. Some people feel that the commercial traders drive the broader market, although my opinion is that they are just better able to analyze and react to it. I can't find a reason to be short right now, and so I am recommending exiting the leveraged Rydex and ProFund bear funds. The bigger picture still shows a mature downtrend. And I fully expect to see the volatility continue. You can track the numbers yourself on public sites. The US Governments maintains a site at cftc.gov, but unless you really know what you are looking at, it won't help much. Another site, pfgca.com does a nice graphical job of tracking the sentiment of the S&P E-mini, but for starters I would suggest this site:http://www.sentimentrader.com/?source=overture Sentiment trader showed a much higher short term positive positing yesterday, and you should see this slider move about in opposition of what the market does each day. The general theory is that if the market is up, it will be down tomorrow (remember they are day trading here and can exit any time to take advantage of the market forces). The mid and long term number move slower, and are much more important for fund investors. I hope to write an article about this soon, and will be adjusting the FundList based on some input from clients this weekend. All in all though, I remain comfortable that unless the mid term sentiment and commitment reports start declining, we should see some uptrending in the markets shortly. Scott fundpilot.com