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To: donald sew who wrote (39149)	4/12/1998 12:06:00 PM
From: joe smith	Read Replies (2) \| Respond to of 58727

donald, mutual fund cash levels are extremely low. less than 8% is bearish and it is now less than 5% and in a downtrend for the last five years. we crossed below 8% in 95, the first of these monster up years that we have had for s&p and dow. fund managers dont dare hang onto cash because they have to keepup with the other guys performance. this is considered bearish for a couple reasons imho. one, if people start selling, funds need to sell stock to give the money back. that causes more selling. two, without money to buy on dips, what besides new money is there to push market to even higher overvalued levels. shes coming down soon. js

To: donald sew who wrote (39149)	4/12/1998 12:24:00 PM
From: Robert Graham	Respond to of 58727

I am not taking your comments as an argument to my post. Here are some additional thoughts of mine on this market which I hope will help to answer your questions about market liquidity. IMO there are basically two significant factors at work in the market that come out directly in terms of the price action of the market: technical and internal. The technicals condition as you know is the result of the day-to-day interaction of normal buying and selling that is done by the various interests in the market. The internals of the market are the large "insider" interests in the market such as the funds and other institutions. Where their money goes, so will (eventually) the rest of the market. The actions by the "big"money in the market does end showing up in the technicals of the market. But due to the size of these buying and selling interests, their motivations that result in combined buying and selling in the market can alter the quality of the market and how the market shows up in terms of the technicals. The internal condition of the market, or in other words the position of the "big" money such as the funds, is IMO best monitored by traditional charting practices of price, volume, trend, and the price action's behavior with respect to various forms of S&R. The tape is very valuable here too in tracking the large block "footprints" of the funds into specific stocks. The large interests tend to sell when the rest of the market is buying, and tend to buy when the rest of the market is selling, over a period of time. Even how the market reacts to news can help determine the position of the large interests. In their accumulation phase, funds will purchase on "bad" news that generates a greater supply of shares for them to purchase, and sell of the "good" news where there is waiting demand for their large blocks of shares that are to be sold during their distribution phase. I think you are right in what you have to work with is your technicals and your system. And considering the current market environment, your technicals apparently continue to help you monitor the market. After all, the effects of the changes in market liquidity even for interim periods, will show up as technical changes in the market. So this should be no surprise. As mentioned above, I think market liquidity on this scale shows up in a qualitative way technically speaking. For instance, OB is the normal state of affairs. When price momentum weakens where there would normally be a substantial pullback, instead the selloff turns out to be moderate. Then the market continues to advance retaining an OB technical reading. This is what has thrown even some technicians who are seen to be very experienced. I do like your technical approach because you are quick to recognize changes in the market and adjust. As far as your techncals showing a more "normal" market, IMO what would cause this would be a downward liquidity change in the market due to the abating of large scale buying by the funds. Add to this the actual selloff by the funds during their sector rotation, and IMO you will have extended selloffs by the market which is probably more inline with what your technicals are showing you. When the fund sales are finished, I think the market will remain volitile until the funds have determined a bottom and begin to buy up large blocks of stock while there still is a supply to be had unlike when the market is in a strong uptrend. Does your technicals indicate that there is likely to be continued selling? This is the part that normally in a market with high liquidity can be misleading. As long as there is no major buy-in by the funds, then I suspect if your technicals indicate a continued selloff, then a continued selloff is likely to happen. However, when the funds step back up to the plate in their combined large scale purchases, then the market will begin to show strength by for instance respecting key resistances despite what the technical indicators are saying. However, a market consolidation period may remain before the market begins its next run up. In this sense, the technicals will be still inline with what will happen in the market as the funds begin their buy-in back into the market. After all, as you know, OB with declining price momentum can endup as a selloff or/and a market consolidation period. But due to the large liquidity available in the market, IMO it will pay to have price confirm the technicals. So for the reasons related to institutional interests that I have mentioned thus far into my post, I would place an emphasis on the price action and price patterns made by the market along with volume and money flow, a more traditional chartist approach. Of course the MAs are worth watching as points of support (or resistance). Sector rotation even in normal markets would show increased liquidity when the buying begins. Large amounts of money are being moved around which will have a noticeable technical impact on the market. After all, last I heard even with old data, funds represent well over 40% of the money in today's market which I am sure is actually much more now-a-days. The funds cannot afford to chase prices up, so this would likey begin to happen when there is a large pool of shares available to be purchased in the market. This is during market selloffs and consolidations. I have not been following the technicals of the market as closely as I would like to, so I have been going by other people's analysis such as yours. But if I am not mistaken, the major market indices like the NASDAQ appeared to have bounce at their 20 day MA which is a sign of a continued strength in the market which the funds are at least partly responsible for. It is interesting to note that the sectors that have been leading the market to have sold off prior to this current market correction and have remained in a consolidation pattern except for the financials which appear to have remained strong. I suspect if the financials start to sell of next, this market slump will last longer. Still, if you were a fund that represents a significant amount of money there in the market, and you had allot of money to move out to then move back in, would you sell the all the market leadership at once? Or would you sell your stocks in the leadership sectors in a selective fashion before finishing up with the one last sector leading the market. In this way you can continue to sell into the market strength that this leadership sector can help to provide. The financial sector has been showing very good strength as a market leader during this market rally as it continues to do considering the market retrace. Also after the initial market selloff, I think it would be prudent as a fund to carefully move the money back into the market when there is still a large supply of shares available to be purchased. IMO this new accumulation will take place over a period of time before the next bull cycle will start. Have the funds started to purchase back in to the market? I suspect they have in a selective fashion. More purchases will come when they see the market has bottomed out. But they must start their purchases before the next bull run of the market take the prices higher and take away the supply of shares to be purchased by them. This means the buying has to start early, before the trend begins to set back in. This is why I think it is important to monitor for signs of accumulation in the leaders of different sectors. Price patterns and A/D can help here. Also a look at the tape of individual stock issues of companies that are sector/industry leaders can be beneficial in noting the large block "footprints" of the funds. For the funds will move into an industry's leadership first. Just some thoughts. Even though I have seen market liquidity like this in the past, this is the first time I have been following it this closely. Comments and feedback always welcome. You think I need to shorten my posts a bit? ;) Bob Graham

To: donald sew who wrote (39149)	4/12/1998 1:46:00 PM
From: Gersh Avery	Read Replies (1) \| Respond to of 58727

Donald Re: liquidity; Liquidity is why I watch the exchange rates for the currencies. If the dollar is strong before the markets open then (to me) it shows a movement of liquidity towards the US markets. Likewise if the dollar has weakened overnight it shows a flow of liquidity away from US markets. The Soros move (if that was indeed what it was) and BOJ intervention were events that clouded this liquidity picture. My guess is that the currency traders would not have made the moves that they did without first having seen a weak response to the "reform" package that was being presented by the Japanese government. We now have a VERY LARGE block of liquidity sitting in Japan waiting for just the right moment to move here. Gersh