Dan “The Money Man” Frishberg’s Views
Strategic Analysis --- Short Term:
We are not doing any new buying at current levels, though it is tempting as prices persistently
move up. We are picking up short term weakness, alongside the longer term strength, we have
been reporting for many months. Daniel Frishberg see no sign of a major long term end to the
bull market, but wants to share a refreshing pause to provide a lower risk entry point.
In the short run, stock, prices are rising persistently, though beneath the surface, our Market X-
Ray is picking up less strength. Technicians would call this a divergence that is the early
suggestion of a pullback or profit taking episode.
For example, the number of stocks above their 10 day moving average was around 90% now
it’s at 75%. It is moving down, while the indices like the S&P 500 continue to move up. In other
words, we see underlying weakness, still looking good on the surface.
I should mention that many analysts see some good reasons for persistent optimism among
U.S. investors. Markets are made up of people, who are both individuals and part of a herd. Just
because prices reach levels that have in the past indicated that a round of selling was imminent,
doesn’t mean there isn’t something moving people to buy right now.
If the president is weakened and unable to put in more rules, like cap and trade, and more
regulations, the markets would take that as a relief at least for a while.
Americans deal with whatever the reality is, once they know what it is and what the rules are. If
it looks like the changes to our society will stop and the situation will get stable, many people
would just find roots and start developing again in the new situation.
The stock market does not accurately predict every little change in the world situation. But
Daniel Frishberg has noted in studying history that the stock market has been the only true
indicator to show a major inflection point.
The stock market started to rally late in WW2, at a time when Germany and Japan appeared to
be unbeatable, and just about everyone in Europe and Asia was resigned to the Axis powers
being in control for the next hundred years. History demonstrates that the markets started to
rally exactly at the turning point at which the U.S. led the Allied nations to victory.
I don’t want to be so dramatic as to predict that the present rally signals a terrible loss for the
President and the Democrats, but in my mind, at least, the gridlock that could follow the fall
elections could be a great positive for the U.S. economy and its markets. Perhaps that is what
markets are responding to, but as mentioned above, it does not explain why indicators of
demand are becoming more selective, rather than broadening.
I have mentioned before that most analysis is done by seeing all market participants as one
homogenous group. We have found that this invites error. Buyers and sellers are actually two
different groups, operating under different sets of pressures.
Buyers are actually seeking an opportunity to assume more risk, because they see the odds as
favorable. Sellers, on the other hand mostly want to reduce risk by removing their money from
These are two entirely different psychological states, and the groups behave differently.
Analyzing them as one often obscures important clues as to what may be coming next. This
may be one of those times.
Most of the time during the rally in September, which has been quite impressive on the surface,
we have seen a steady decline in stockholders willing to sell. They are persistently holding out
for higher prices, but up until the very one-sided buying on Monday, we have picked up
surprisingly little increase in the motivation of buyers to respond to the rally by joining in, as they
often have in the past. If this new demand persists, we could have a whole new story to tell and
a revised, stronger forecast over the next couple of weeks. At this point, we watch carefully.
Longer term – the risk/reward still suggests that some of the best deals available are in the U.S.
high yield bond market and in bonds issued by the emerging markets sovereign wealth funds.
Though these domestic bond and foreign fund prices have been moving up steadily there still
remains opportunity in them. Not only are interest rates in this sector very high compared to
U.S. Treasuries, but we also expect to see further appreciation, since we think the risk profiles
are improving and rates should ease.
With this as an alternative place to invest, we can afford to be selective about how and when we
commit capital to the equity markets, taking our time and waiting for low-risk entry points.
We have eliminated exposure to most domestic stock market sectors, leaving only raw
materials, which will certainly be the building blocks for global growth. We also maintain our
commitment to second tier emerging markets, such as Turkey, Chile, Poland, and Taiwan. We
are specifically avoiding China and India, since those are crowded trades, and those countries
know what they have and are becoming tougher to deal with.
We are not eager to eliminate exposure in these second tier emerging markets, because we do
not see any indication of increased selectivity such as we saw in 2007 and 2008 when we
forecasted the major top which eventually came to pass.
Action summary – hold off on new buying.
Take profits where you learned earlier in the year that you were overexposed. You may love
those positions today, after the persistent rally, but remember, adjustments are made by buying
fear and selling happiness. As prices move up on low volume, we love our stocks more, but the
risks are actually rising, making other investments relatively more attractive.
On a pullback, consider researching Turkey and Chile. We have covered these markets on The
MoneyMan Report and have prepared white papers on these countries and their economies. If
you have not had a chance to read these report, please contact Sonia at 713-748-9642 and we
will make them available to you.
THE SHORT TERM TRADER’S CORNER:
TextTraderThoughts from Resident Trader Jason Shade, CEO of TextingTrades:
ProShares Ultrashort MidCap 400 MZZ
Every bull market rally needs to have some protection. With that in mind, investors may wish to
initiate a small position in the ProShares UltraShort MidCap 400 MZZ (16) this week. This ETF
enables investors to protect their long positions by shorting a basket of S&P 400 mid cap
stocks. Consider it insurance against a market correction. Note, this is a strategy for short term
traders only at this point, and does not contradict the longer term analysis above..
As we continue to see this market push higher, we also see buying demand growing weaker.
This indicates to me that in the near term a significant pullback could be upon us. Currently,
many technicians are saying the market appears poised to break through an inverted head and
shoulders pattern, which would be bullish for the markets and lead to a nice move to the upside.
I believe before we move forward in this bullish pattern, the markets will see a correction.
Usually most of these highly identifiable chart patterns never materialize immediately because if
they did everyone would make money. By initiating a position in MZZ, most traders would be
protected if we do see a pullback before pushing steadily higher. In the event that the DJIA
breaks through the inverse head and shoulders and remains above 10,800, traders would then
be offered a cue to cut the insurance policy against market downside loose and allow their long
positions and market to run.