Tuesday, June 26, 2007

According to Soros

I read a piece some years back where George Soros was once quoted as saying successful investing is being able to recognize the trend whose premise is false, ride that trend, and step off before it is discredited. Boy o boy is that applicable today. It seems to me than any educated fund money manager worth his salt is fully cognizant of the risks in this market. Just as I believe they were prior to the tech blow up of 2000. I was a retail broker during that debacle, (with minimal tech exposure I might add, needless to say that was not the way to the chairman's club but I digress) and read many interviews with mangers. One I remember in particular was with an old hand at Fidelity whose name escapes me at this moment, anyway he complained about how that market was completely off its rocker, yet he was fully invested. He needed to be to keep his job. Furthermore, and here is the kicker, he was short with his own money. Now forget the conflict of interest this presents but the guy you have managing your money thinks the market is crazy overvalued and is short with his bread, yet is pedal to the metal long with YOUR money! So the question you ask is if they are fully aware of the risks why are they doing what they are doing, seems counter intuitive, to put it politely. Many other market observers have speculated as to the why they do as they do, so I would leave that to a clinical psychologist. I want to go back to Soros comments about recognizing a trend whose premise is false, riding it and stepping off before it is discredited. If we accept the fact that the street attracts very bright people then the street is littered with people who believe they are smarter than everyone else, hence the phrase 'smart money'. Side note, I have been on too many conference calls listening to the so called smart money, and this I can tell you, it is not always all its cracked up to be. I was told long ago by someone far wiser than myself that often you can learn more about someone (their acumen) via their questions. Now this intellectually superior smart money would explain the mentality that even though a trend is widely known to be false, we now have all these very bright people who expect to be able to step off the train before it derails. I don't know if this is naivete, bravado, or sheer stupidity. The one thing I do know for sure is that everyone will not be successful in their escape. The laws of nature wont allow it. As for the pundits of the major houses who continue to talk up this market as they did in 2000, well lets just say that their interests and yours are not always in alignment.

This is 2 days in a row where they have ramped the market up only to see it give it all back before the end of the day, not what the bulls want to see. Remember though this bull has more than 9 lives and every drop is a buying opportunity. Gets everyone to thinking they can't lose, remember the movie The Sting with Newman and Redford, they sucked that mobster in good and tight, till he was convinced he couldn't lose. The market is very similar, wants everybody in and all naysayers discredited before it will break. Lets let the tape tell us where to go. We want to put our rocks in the wettest bags as they break easiest. Translation don't bother shorting Apple, Google, and Baidu, they're not worth the stress.

Power shares agriculture fund. ticker DBA is pulling back nicely after an above avg. volume break out thru 26. I am in thru $26, so if you missed the first thrust up it is testing the breakout area now on light volume, and adding thru 28.50 which should really ignite a move up.

Real estate continues to tank with the IYR making new lows. The 50 has crossed the 200 on the downside. Good news for us realty bears. I missed the homies and did not want to be fooled twice. My favoured play on this the SRS is making new highs and volume is starting to swell.

Consumer goods head and shoulder continues to develop a break below 62 on IYK would mandate entry. My preferred vehicle of choice on this would be the Ultrashort consumer goods proshares ticker SZK.

Gold is right on its 200 day and needs to be watched closely. Could be margin call selling, could be the games big boys play, who knows, who cares, we will find out later. Trend line from summer of 2005 lows is still intact so we will watch close.

Silver got shellacked today and is inherently much more volatile than gold. No need to ask questions they will be answered later. We need to concern ourselves with the tape and today's action is NOT good. Trend line support from June/06 lows has been broken on heavy volume if you look at SLV the etf. If we break $12 then $10 is the next stop. Now this could be a con but discretion is the better part of valor and above all we want to live to trade another day. I love the fundamental case for silver but unfortunately my margin clerk doesn't care a whit, besides we can always get back in later.

Crude is consolidating above the breakout and still looks good. 3 carrier strike groups in the gulf, peak oil, supply demand fundys spell higher prices.

Natural Gas ($natgas) has some support about $7 just wondering if they are shaking out latecomers to the party. One of my favourites is Natural Gas Services NGS which broke out (I missed it!) and is now pulling back to the breakout area of $16.50 which is where I get in.

Japanese Yen is drifting lower. This could be the the nitroglycerin of the subprime housing cocktail. Lots of these fund managers have been using the Yen carry trade to finance all the crap they've been buying so continue to watch close.

Merrill Lynch should make a run for $77 the old low back in March. Volume has picked up since MER broke $87. Good for bears bad for bulls and very bad for Mr. Market.

Good luck and good trading to you.

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