Hi Lee,
As you know I'm a point and figure nerd. And, per our previous PM's, I've created a few P&F market indicators that I'm back testing to see if they will help me with timing. So, a question to you and the other good folk's on this thread.
I'm interested in possibly creating a P&F chart based on Laszlo Birinyi's input relative to his mutual fund cash indicator, --- that is, if I can get the data and a basic understanding of its usefulness. I'll provide two items where he discussed this subject.
The first item is from a speech on August 13, 1997 at the New York Society of Security Analysts. The title of his speech was The Failure of Technical Analysis. A portion of the speech as follows:
1. “Now I remember one day, just before the Gulf War, where crude oil went down $10, went back to even, went up $10 and then closed down at 9. Now in a computer database, it's going to look like a non-event day. And yet if you were right on oil that day, you probably made a lot of money. And if you were wrong, you were probably doing something else. But charts no longer work because the market has changed. Give you one simple example, that I think people should go through, on page 5, we have something there called days of buying power. There's an indicator with which you're all familiar, called Mutual Fund Cash. And it's been around probably since the first mutual fund. This Mutual Fund Cash divided by Mutual Fund assets. It's no longer useful, because today, Mutual Funds are so big, and they're so important, that they can't take the business risk of going with 15 % cash. It is such a competitive business, that basic mutual funds are for the time being, or for the foreseeable future, they're going to spend around 10, 8,9,6 or 7% cash. They just can't take the risk, their too big. Somebody who's running 10 billion dollars can't take 25% cash, because if he's wrong, he's dead.
What we have done is very simply made a different indicator. And what we do is take mutual fund cash and divide it by NYSE daily line. So how long would this cash take to get into the market? It's actually a sentiment indicator, because now people aren't worried about how much cash they have, they're worried about how long will it take to get in and if, you can't see it that clear here, but this gave up some wonderful, wonderful signals as some of the recent bottoms. Again, it's a very simple adaptation of an old indicator and I think that we should review, and the technician should review the indicators to see which ones are relevant. For example, no one every talks much about odd lot short any more. -Ok, they've adapted.”
The second item from an interview in TAS&C –
2. “Every technician in the world keeps track of mutual fund cash. Well, we
keep track of mutual fund cash, but it's a fairly uneventful indicator.
If you look at the 1980s, it was really in a very narrow range. In the
1980s, mutual fund cash averaged 9%, but the range that it had was not
one of great significance—you know, markedly overbought or oversold or
anyplace where you could really get major and useful inputs.
Why?
The reason is that the mutual fund cash indicator does not reflect the
fact that in 1980 equity mutual funds had $30 billion. In 1990 they had
$245 billion. If a mutual fund, say, had a value of $50 million in 1980
and was 10% in cash, they could get it invested this afternoon or buy
tomorrow at noon. Today, that same mutual fund may not have $50 million,
it may have $600 million. All of a sudden, 10% in cash has become a
sentiment indicator. Now you're expecting this market to not do much
because you can't get $70 or $80 million to work in a very short period
of time.
Have you come up with a different version of that indicator?
We look at mutual fund cash divided by NYSE assets, which shows you how
many days it would take this cash to be dissipated. Somewhat
similar to the short interest ratio—how many days it would take to get
invested. That indicator gives us much more definition and input into
the market than the traditional indicator did. Indicators have to be
updated to reflect the reality of the market.”
END OF ITEM 1 AND 2
My questions to you and others Lee, is:
1. Can someone direct me to a site that provides fund cash? Also NYSE assets? (In the first example he said mf cash divided by NYSE Daily Line. Is Daily Line the same as assets?) I'm not sure what he means by NYSE assets? Is it market cap? I've done some searches and found nothing to date.
2. As a sheltered P&F guy I've ran across mutual fund cash indictor discussions before but put very little thought into it. Would appreciate others thoughts on what Laszlo is saying and how one would interpret his adoptive indicator. (I'm not sure how one can convert this info to “How many days it would take to get invested.”)
Thanks Lee and any others who might provide some input. If not comfortable on open thread, please PM it.
Take care,
Eric
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