HOW ONE iTuliper IS INVESTED?

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

Four days since the note above, and no rally.

I mentioned above John Hussman's observation/warning that investors should not be surprised to see a big one day upward move ("clearing rally") in the markets. I jiggered that "one day" into the big move off the intraday low of 1/9 to the intraday high of 1/10 and when the market moved down ~225 point from the 1/10 intraday high, I added to my six -200% funds: SRS, SKF, DXD, SDS, QID, and TWM.

Then I read Hussman's note from the this past Monday in the section Market Climate: http://hussmanfunds.com/wmc/wmc080114.htm

Frankly, I am surprised that the market's compressed oversold condition has not resulted in a material “clearing rally.” Typically, when the vast majority of stocks are trading at the lows of their recent range, the market clears this with an advance averaging several percent over the following 4-6 sessions. The heaviness of the market's action, coupled with increasing volatility at 10-minute increments, continues to suggest significant risk. My impression is that a further decline of several percent from here would increase the probability a sharp clearing rally enough to warrant covering part of the short-call side of our hedges (leaving the put options in place to defend against further weakness), while a strong clearing rally from here would be a good point to raise our put option strikes and establish a stronger “staggered strike” defense against subsequent weakness.

My reaction to reading that was, "Oops!" Shoot, I thought we had one--a clearing rally, but not apparently by whatever Hussman makes his judgements. Nevertheless, things are even more conducive now to the possibility of such a scenario as Hussman has described. No one should take it that I am betting my life's savings on this observation of Hussman's. I'm not. I think smart people who look at a lot of things about markets, both technically and fundamentally, see things that those of my ilk do not see. I still am willing to be prepared for such a move as Hussman has expressed as a possibility.

I considered selling all my long inverse fund positions today, then 50% of them, and ended up selling right at a fourth of each of the six positions. Told wife if I sold all them, surely the market would crash in the next several days. So I think I have protected all investors from a crash in the next several days. Maintaining 75% of the inverse funds, probably insures a rally--joke, nothing is certain.

The II bull bear numbers from Wed. are still neutral, and certainly not indicative of any serious bearishness amongst investment advisors.

The 19day EMA of the $XVG, Value Line Geometric Index is the lowest it has been since 10/10/2002. It was lower a few days at those Oct. 2002 lows, and unfortunately for me, I don't have these data all the way back to 2000 tops. All I can say about the present reading of -7.62% below the index is that it is rather oversold and suggests a bounce in here--which of course may not happen.

The McClellan oscillators on NYSE and Nasdaq are both < -100 and in the territory where some upward market movement could be at hand, but they have at times been much more negative than the actual reading now of -122 for NYSE and -119 for Nasdaq. Everything I look at says the markets are oversold here, but the fact is they could still become moreso, nothing is certain.

There have also been put/call ratios for Equity Options of 1.05 on 1/15 and 0.99 today 1/17. Those are aligned for there to be some upward market action.

12/11, 12/27, and 1/15 have all been days in which the volume and points down for the NYSE were 90% or more negative. Such reading have not been recently (last year or so) infrequently reversed by the occurence of up-moves with 90% of the volume and points being positive. Generally periods of negative market action after such -90% readings go on for some period of time. If we were to get an up-move with positive 90% readings in volume and points on the NYSE, I would vacate my inverse fund positions. In fact if there seems to be some strong up-move off today's intraday DJI low of 12125.56 say to the tune of +200 points early in the market day, I'll probably close them out and wait for another re-entry point to the downside.

I booked a profit of 28.7% on the partial positions I closed today using first in-first out accounting, but I could turn around and lose that much in several hours of strong up-action.

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

I was just looking again at some things in order to consider what may be the next step to consider with these short positions which are 27.59% of my portfolio. Of course they are no immediate problem if the market were to continue to trend downwards.

The issue is one of stop-loss points if the market resumes its upward trend.

The bearish price objective using Point and Figure charts at stockcharts.com for indices shows

Bearish price objective DJI 11,500
SPX 1260
NDX 1630
RUT 580

Those numbers are comforting, the only problem with them is I find their predictive value to be useless. So no help here.

I mentioned above a concern I had was adding to my short positions, which I in fact did on Friday 1/11/08, when the CBOE equity put/call ratio was 0.97 on 01/08/08, and that generally such high readings were indicative of "fear" amongst the small investor and readings in the vicinity of 0.97 or higher had marked good entry points for upside movement in the indices over the past year. That still concerns me.

The American Association of Individual Investors data for last week from todays Barron's showed 19.6% bulls, 58.9% bears. The Bu-Br difference is -39.3. I track that number each week, divide it by 5 (if I remember from long ago, so that it would fit into a graph of some sort). At any rate my calculated (Bu-Br)/5 for the latest number is -7.86. That is the lowest number I have going back to 6/30/89 which is as far back as my data go.

The previous low was -7.38 for weekending 2/21/03, ~2weeks before the indices generally tested their 10/02 lows and then kicked off on the 5-year bull market. On a contrarian basis looking just at the AAII number for the past week, I don't guess it can get much more bullish.

Investor's Intelligence (II) numbers for last week were 48.5 bulls and 25.8 bears

http://www.schaeffersresearch.com/streetools/market_tools/inv_intel.aspx

I don't have a long database on II numbers, but I consider the last reading as rather neutral.

The Nasdaq advance-decline numbers are slightly more oversold than before the big move up Wed. and Thurs. NYSE numbers are a bit less oversold over the same period.

The Value Line Geometric 19-day EMA is still very oversold being -5.17% below the index value. That is bullish.

I don't normally track the daily percentage change of any of the indices, but I went back tonight and calculated the daily percentage change for the DJI back to 10/2/2002. On a closing basis, the largest one day loss was -3.61% back on 3/24/03, right after the market had hit a significant low on 3/11/03. The largest one day gain in the same time frame has been 4.80% on 10/15/2002, the next biggest gain was 3.59% on 3/17/2003. After that the largest one day gain by the DJI was 2.84% the market day before the -3.61% loss that was just noted.

The intraday low 1/8/08 to the intraday high 1/9/08 of 428.96 points or 3.43% compared to the big positive moves noted above qualifies it as being a "big" gain. I wish I had the data at hand to look at the magnitude of swings from intraday lows to the next day's intraday highs in order to have an apples-to-apples comparison, but I don't have that data. In the absence of that data, it is possible that 3.43% would not be such a "big" gain in the DJI.

My assessment right now is the best bet must be that the market is near some sort of an intermediate low--not a good time to be short, though that is where I am.

I have mental stops for all my short positions. The stops are the intraday lows of each inverse fund from the last 4 days.

	STOP	TO STOP	LOSS @ STOP
SRS	119.24	-6.16%	-2,985
SKF	107.19	-3.23%	-1,572
DXD	52.57	-5.01%	-2,541
QID	41.78	-6.74%	-3,435
SDS	56.64	-3.67%	-1,858
TWM	75.76	-7.49%	-3,831
		TOTAL LOSS	-16,223
		% LOSS	-5.40%

These are not entered as stop-loss orders. It they are hit, I will enter "sells" as the hits occur. It is impossible if I get hit on these and sell the positions that I will end up with the exact losses in the table.

I think the most educated estimate I can make right now is that the markets ought to rally. The surprise will be if they don't.

[jk]

Re: HOW ONE iTuliper IS INVESTED?

Jim,

Thanks for sharing your investing info . . . .

My thinking on agricultural commodities went like this:

No matter what happens, people have to eat, so my first thought is that agricultural commodities would be a great investment.

However, in the upcoming recession/depression, there will be a demand drop in oil, and a dip in oil price. (Short-term, Lukester, not long-term ;) )

I don't have data, but my impression is that farming requires lots of oil -- for chemical fertilizer production, machine operation, transportation, etc.

So my fear is that with oil going down, the production cost of agricultural commodities will go down, and as a result, the price of agricultural commodities will go down.

My conclusion was that agricultural commodities are a good investment, but it would be better to wait for awhile . . . .

I would like to hear other's thoughts on this . . . .

part of the agriculture story is the process of upgrading diet quality in the developing world. it takes 10 units of vegetable product to produce 1 unit of animal product. thus, during an expansion, there is a multiplier effect on agriculture- as the developing world gets richer it causes an accelerating demand for agricultural output. on the other hand, this process should work in reverse if there is a global recession. chinese who developed a taste for pork will quickly reduce their pork consumption if their incomes drop, and this will cause a leveraged drop in the demand for animal feed.

[raja]

Re: HOW ONE iTuliper IS INVESTED?

Jim,

Thanks for sharing your investing info . . . .

My thinking on agricultural commodities went like this:

No matter what happens, people have to eat, so my first thought is that agricultural commodities would be a great investment.

However, in the upcoming recession/depression, there will be a demand drop in oil, and a dip in oil price. (Short-term, Lukester, not long-term ;) )

I don't have data, but my impression is that farming requires lots of oil -- for chemical fertilizer production, machine operation, transportation, etc.

So my fear is that with oil going down, the production cost of agricultural commodities will go down, and as a result, the price of agricultural commodities will go down.

My conclusion was that agricultural commodities are a good investment, but it would be better to wait for awhile . . . .

I would like to hear other's thoughts on this . . . .

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

Jim,

The only commodity missing in the list is fertilizer. I don't know anybody who is long fertilizer. It could be the only unsecuritized commodity with huge upside potential like Uranium.

Igor

On the contrary there seem to be very few who are short bullshit--which if it can be obtained in its purest form really makes stuff grow; whereas in its most frequent form it is useless.

[idianov]

Re: HOW ONE iTuliper IS INVESTED?

Jim,

The only commodity missing in the list is fertilizer. I don't know anybody who is long fertilizer. It could be the only unsecuritized commodity with huge upside potential like Uranium.

Igor

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

Today I added to positions in DXD, SDS, QID, TWM, SKF, and SRS when the DJI lost ~171 points, which amounted to it losing ~250 points from the intraday high Thursday 1/10/08. The amount of each additional purchase brought each total position to about 4.6% of my total portfolio.

On 1/3/08, I opened positions in RJA of 0.94% and RJZ of 0.90% of my portfolio. The pie chart below shows the allocation in RJA.



The chart below shows the allocation of RJZ



http://www.elementsetn.com/ProductsPage.aspx link to the Rogers Commodity ETN's.

I might add that is difficult to find words to adequately describe the pride I have now in having a piece of the action in azuki beans and greasy wool.

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

Heres's what I posted earlier from http://hussmanfunds.com/wmc/wmc071217.htm


Quote:

Originally Posted by Hussman I'm back to the more typical position of having no specific short-term views. That said, there is one particular scenario that would be ominous in my view. That would be if we see a relatively uninterrupted series of declines that breaks cleanly through the August and November lows, followed by a one-day advance of 200-400 Dow points. That's a script that markets tend to follow pre-crash. Though it's not a strong expectation or forecast, it's something worth monitoring, because we've started to see the pattern of abrupt jumps and declines at 10-minute intervals that is often a hallmark of nervous markets.

Note Hussman's comments were written on 12/17/07, then from 12/26/07 we have witnessed an "uninterrupted series of declines that breaks cleanly through the August and November lows." Without starting a debate about what "cleanly" absolutely means, the intraday low on the DJI on 1/9/07 took out the 8/16/07 intraday low by 16 points, and the closing low day before yesterday definitely took out the August and November closing lows.

Since 2:16PM ET yesterday (1/9/08) until 3:10PM ET today, the DJI went up 428.96 dollars. That covers a bit over the length on one trading day and occurred in the course of two trading days. [edit:7:30PM CT, I believe it is correct that from the intraday low yesterday 1/9/08 to the intraday high today 1/10/08 the DJI gained 499.76. I had and continue to have some trouble with the 2 day charts with one minute intervals in seeing the reported lows for yesterday which I believe was 12431.53. The reported intraday high today was 12931.29. From that high to the close today the DJI lost 78.20 dollars.][edit:11:20PM 1/12/08 I was just going back over some things, and the number above 428.96 appears to have been correct, the 499.76 was not.]

Whether or not over the next few days, or today's decline from the intraday highs and several more days, we see a crash is going to be interesting to watch. My thinking about the odds of anyone actually calling a crash is that the odds must be small, but then I watched Marty Zweig do it on Wall Street Week in 1987, only to then watch utterly dumbfounded on Monday after his Friday night call as it occurred.

I have recently been influenced by a couple of "calls" about market direction, one was
Quote:

Originally Posted by EJ Takes patience to wait out the funds that control more than 50% of the money in the markets today. Now at last I am taking a few speculative short positions before end of year, Monday Dec 31. I will share my analysis and conclusions on this thread and invite members to participate and comment.

and in the post

see the link

I noted another call made by Mike Burk in which he identified technical market conditions that he suggested indicated a market top in the major indices. He did that on 10/1/07 and 10/6/07 and as they say in Olympic gymnastics about good landings, "he nailed it." At least so far that is true.

What provokes my interest in Hussman's calling attention to a set of conditions that he, for reasons he never explained except in broad terms, warned as "ominous" is that he noted this almost a month ago. Now it seems that those conditions have begun to unfold as explained above.

Yesterday 1/9/08 after the markets' reversals, it made me consider liquidating my short positions (about 18.5% of my portfolio). The single factor besides the markets' reversals (and the money I lost) was the CBOE equity put/call ratio was 0.97 for 1/8/08, the day of the markets' lows so far since the highs in October and before for the RUT and $XVG. I take a reading of 0.97 in that indicator to be fairly indicative of "fear," and at the times of similar reading in the past year, it has been a good time not to be short and to be long.

I was kicking myself today for not selling on the opening, but then I got to thinking about what Hussman had written and upon reviewing it, a part is above, I think being short is still the place to be. Hussman also just commented 1/7/08

The stock market is oversold short-term, which invites the potential for a spectacular “clearing rally” of the typical variety – fast, furious, and prone to failure. While such an upward spike might be embraced as some sort of message that the market has “fully discounted” negative conditions and mark a successful “test” of prior lows, the data suggest that underlying market and economic conditions are rapidly deteriorating. In that context, a spectacular short-term rally (particularly a one-day barn burner) could provide a setup for concerted selling.

My emphasis in bold.

I ask what has really changed with the markets since Friday--the data available to Hussman when he wrote the note just above?

BoA offering to buy CFC? Is that enough to change the direction of a market that is in trouble? I don't think so.

Bananake saying the Fed is going to lower rates ad infinitum (almost), when what the Fed does is follow whatever the market deems rates to be, is that going to change things? I don't think so.

When I finish this note, I am going to figure out how to allocate about another $100,000 between DXD, SDS, QID, TWM, SRS and SKF so that I have nearly equal positions in all six -200% funds.

Using the DJI to follow, I can't watch 5 or 6 things at once, if the DJI continues up in the morning, I'll hold my orders until and if there occurs a 50% reversal from whatever further interim high that is attained. If it meanders down so that its loses half (250 dollars) of the bottom-to-top gains over the last 9 hours the market was open, then I'll put in my orders. The Asian markets as I write are a bit down except for Malaysia and Philippines, so nothing there seemingly pointing to a "crash" tomorrow in our markets.

Why should the market "crash"? I have no idea, except to go on what Hussman has, for reasons known to him, identified as a set of conditions in which one might expect a significant downward reversal off the bounce we have just had.

We'll see. The main reason I am putting this up is that it has made me try to think through the issue.

[Nicolasd]

Re: HOW ONE iTuliper IS INVESTED?

Jim ,

Learning by failure and learning by doing are 2 powerful learning methods !

Looks like you went through both and survived so I wish you many more succesful investing decisions in the years ahead of you !

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

my guess is that although you've come up almost back to your peak of 8 years ago [at least nominally], you don't have the euphoria and feeling of genius i imagine you might have been feeling back then. your humility and caution can only help going forward.

Actually I am still 172.4K below what I had in liquid assets at top. I was euphoric and remember thinking "I can't believe I made that much money the year just ended." Without looking it up, it was about 375K, which was more than I ever made in a year beating my brains out working. I don't think I ever thought I was a genius, I think I thought for once I had been in the right place at the right time--only to stand there the next two year and watch that sandpile get washed away.

[jk]

Re: HOW ONE iTuliper IS INVESTED?

So totally true, jk. I just wonder if I'll live long enough to profit from the hard lesson. Actually, since it didn't wipe me out, I did learn to more critically decide between "wants" and "needs" when it comes to spending.

Also, I have never had the cojones to figure out what my loss from my personal porfolio high on 12/31/1999 was when considering inflation. Nevertheless, I survived it, at least nominally, thanks to Greasespam.

my guess is that although you've come up almost back to your peak of 8 years ago [at least nominally], you don't have the euphoria and feeling of genius i imagine you might have been feeling back then. your humility and caution can only help going forward.

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

your 8year number brings up the maxim about the importance of avoiding the big hit. the first hard task is to earn it. the second hard task to keep it. the fallback position on that second task is to learn real, long lasting lessons if you don't keep it, so that you keep it on the next cycle. good luck to us all.

So totally true, jk. I just wonder if I'll live long enough to profit from the hard lesson. Actually, since it didn't wipe me out, I did learn to more critically decide between "wants" and "needs" when it comes to spending.

Also, I have never had the cojones to figure out what my loss from my personal porfolio high on 12/31/1999 was when considering inflation. Nevertheless, I survived it, at least nominally, thanks to Greasespam.

[jk]

Re: HOW ONE iTuliper IS INVESTED?

your 8year number brings up the maxim about the importance of avoiding the big hit. the first hard task is to earn it. the second hard task to keep it. the fallback position on that second task is to learn real, long lasting lessons if you don't keep it, so that you keep it on the next cycle. good luck to us all.

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

I wanted to post more above but was having some difficulty writing beneath the table.

I added a small position in DBA yesterday. Deutsche Bank Agriculture ETF http://www.etfconnect.com/select/fun...sp?MFID=172310 because I am woefully underinvested in commodities. I keep thinking that there will be some reasonable correction in commodities, and there has been in base metals DBB.

My two year compounded gain is 7.88%, 3-year 11.31% and 8-year
-1.51%.

Anyone willing could figure out the actual value of my portfolio from using the numbers I put in the table. To save any inquisitive minds from the task, it comes out to be a bit over 1 million bonars.

[Jim Nickerson]

Re: HOW ONE iTuliper IS INVESTED?

No one reading this can imagine my happiness from having learned how to paste a table from Excel into this "Reply to Thread" window. Thanks so much to FRED who wrote how to do it somewhere in these threads.

The table below reflects my positions at Y/E 2007.

12/31/07	POSITION	% INVESTD	GAIN	% GAIN	ALLOCATION
REAL ESTATE	SRS	2.09%	$3,326.85	17.67%
FINANCIALS	SKF	2.82%	$1,744.55	6.18%
DOW	DXD	2.84%	$1,661.09	5.84%
NDX	QID	2.65%	($584.25)	-2.04%
SPX	SDS	3.42%	$1,972.12	5.74%
RUT	TWM	3.31%	$2,990.16	9.29%	17.13%	-200% INVERSE
GOLD & SILVER	CEF	0.72%	$1,636.11	27.09%
GOLD	GLD	2.33%	$3,416.76	16.03%
SILVER	SLV	1.38%	$468.05	3.29%
GOLD	GTU	1.18%	$2,890.05	30.07%	5.62%	PM'S
COMM AGRIC	DBA	0.93%	$3.00	0.03%	0.93%	COMMODITY
YEN	FXY	10.13%	$5,654.20	5.55%
-YIELD ON 30YR-BOND	RRPIX	2.18%	($1,813.93)	-7.26%
HEDGED EQUITY	HSGFX	19.74%	$7,083.93	3.50%	32.05%	OTHER
	TOTAL	55.74%	$30,448.69	5.43%
	CASH	44.26%			44.27%	CASH
For 2007, I gained 9.48%		100.00%