The HEDGEfolios database will NOT be updated the week beginning April 5, 2010.

If you had bought the SPY on the March 22 open and sold it on the March 29 open, you would have had a positive gain of 1.6%.

If you had bought the SPY on the March 22 close and sold it on the March 23 open, and then repeated that “buy the close, sell the open” strategy for the next four days, you would have had a net gain of 1.1%.

4 out of the 5 overnight trades were winners.

In other words, 70% of the gain from last week’s open to today’s open came on zero stock market volume.

Is that a market that inspires confidence?

Over the past few weeks, I have become less bullish and the market keeps heading higher.  Through last night’s close, of the 381 new DOWN signals I gave this week, 213 of them are wrong.   Of the current 710 DOWNs given in the past 2 weeks, 318 of them are wrong.

This is one of those moments when I am obviously seeing the beginning of weakness where others are hyping growing momentum and strength.  It’s happened quite a few times since I started this blog…just about as many times as I’ve seen improvement when the index is dropping.

So what do you do when you see something others are not seeing?  Evaluate your conviction.

If you have a “contrarian” view that is based upon thorough analysis, your conviction will see you through.  If not, you will flip flop and probably, lose money.

There are times where investing and trading seem easy….too easy and that leads the majority of market participants to substitute confidence for conviction.   We were like that in 2006 and 1999.  And we have been in that mode for the past year and I get the sense that many investors have gotten overconfident and complacent.  Do you do as much analysis when things are going your way and it’s easy to make money?   I hope you do and suggest that at times like these, you need to do more work now.

I always love it when the index moves contrary to what I am seeing with individual stocks.   It allows me to make changes under the radar.

I tried to warn last week in general terms.  This week, I am just going to point out the following:

• The S&P Index advanced +0.9% this week.
• Of the 3087 stocks I cover in HEDGEfolios, 1170 declined this week.   1535 did worse than the index.

• The S&P index declined only -0.5% on Friday.
• Of the 3087 stocks I cover in HEDGEfolios, 2030 declined this week.  1728 did worse than the index.

Be very careful with your portfolios.

Last week, 95% of all 3094 stocks I cover with HEDGEfolios had UP signals.   That level has never happened in over 5 years of HEDGEfolios…it is not sustainable…it is OVER.

I am beginning to move in the other direction.

Be very careful with your portfolios.   The majority of the market is on the same side of the trade .  When that happens, the potential for a painful unwinding is very high.

On February 18th, 2010 I finished my last post with this line….

My projection for the S&P 500 Index is 1151 within the next 20 trading days.

It took 16 days to have a print at 1151.

Some comments I have gotten suggested that it was a lucky guess.   It wasn’t “lucky”… just as when I am wrong it is not an “unlucky guess.”   It was a guess.  That is for sure.  But it was an “educated guess”…just like everything else I have done with the signals in the database and my prognostications in the blog.  All educated guesses.   I work extremely hard to educate myself everyday to make sure that I am better than everyone else who is guessing either with me or against me.

A few other comments suggested that this 1151 was an obvious target and that I should “not get a big head.”   Apparently, quite a few other people smarter and more famous than me have mentioned this target and I was just stating what I heard elsewhere.  If you believe that, I doubt you have ever met me or have not paid very close attention to my values regarding humility, transparency, honesty and the independence of my work.

As I have mentioned here several times over the past 5 years, I do very little technical analysis on the chart of any index, inclusive of the Dow or S&P 500.  So telling me that 1151 was obvious because the people “smarter and more famous” than me were drawing double top patterns using the S&P Index chart…well, that is irrelevant to me.  I do not care what techniques other people use whether I use them or whether my assessment is the same as theirs.

To avoid any more of this nonsense, I am breaking with my practice of not explaining how I do what I do (at least a little.)

Each month, and whenever there is a directional change in the market, I decompose the index down to its individual components.  Using my technical analysis, I determine an expected value for each stock 20 days from that point.   By multiplying the index factor (derived from the weight) by each individual component’s price estimate and then adding all them up, you get a number.   On February 18th, that number came to 1151.  It’s a lot of work.  It takes a lot of data and experience.   It’s not complex.  It was an educated guess.  It just happened to be correct.

Currently, HEDGEfolios covers 3104 stocks and 93% have UP signals.  The previous record high reading was 88% on January 5, 2009.

Of the 2884 UP signals, 2599 have been given in the past 4 weeks.  Meanwhile, of the 220 DOWN signals, 162 were given in the past 4 weeks.

Four weeks ago, HEDGEfolios only had 20% UP signals.   The annualized turnover I am seeing since the beginning of this year is almost double the ridiculously high levels of 2009.

The HEDGEfolios Timing Indicator has an HF Bullish reading of .8070.   If you look at the chart from its inception until I stopped publishing it at the end of 2009, you will see that the previous upper limit or record high was .6047 on November 3, 2008.

The HEDGEfolios Timing Indicator has an HF Bearish reading of .0538.   The previous record low level of .0614 was April 4, 2008.

My projection for the S&P 500 Index is 1151 within the next 20 trading days.

In light of President Obama’s attempt to separate some of the investment banking operations from “banks” that get government funding, bailouts and deposit protection, I encourage you to read something of mine from June of 2008.

In May of 2007, before the financial crisis began, I wrote a post called Newbies.   I’d like you to read it (or re-read it).

When this market finally takes a turn for the worst, where will your money be? Most likely it will be with a “Newbie.” I know most money managers will tell you that this bull run has a long way to go. But just consider the possibility that they are wrong. The last time we had a bearish direction in equities, there were far fewer hedge funds and they were managing a lot less money. The same can be said for mutual funds, money managers and stock brokers. Just think about the funds that are funneling into emerging market stocks and you have to realize when the last bear market was in play, US investors had very little in foreign markets. I hate to leave out all those ETFs that have come on board in the past few years. How about you gold bugs and commodity players? And as for bond funds, it’s been a beautiful 25-year bullish move. We have had simultaneous bull runs in almost every asset class for years. In this expansion, money is flowing in and performance is key. But what about risk? I think it’s time that you ask the people managing your money what they were doing the last time it was really tough to make money and even tougher to avoid losing it. What experience do they have with adversity? If you get on the train that has gone straight and fast for long periods of time, don’t you think it’s important to ask whether the driver has any experience with curves and hills? For that matter, do they know where the brake is and how to apply it. There are a lot of experienced people managing investments and if you are lucky enough to be with the few whose experience includes getting beaten up before, you will be better off. If you are with the “Newbies”, you may turn out okay and you may not.

Do you think anyone listened to me back then?

It doesn’t really matter.   But what does matter is whether you will listen now.  You have another chance.   Look back on the performance of you or your financial advisor in several time frames.

What did you or your advisor do to earn your returns from March 2003 until July 2007?   Were they lucky or good?   Did you see any signs of risk management during that bullish period?

What did you or your advisor do to avoid losing money from July 2007 to March 2009?  Was there a proactive plan or were there constant reactions to the next bunch of bad news?   How was your portfolio adjusted to manage the risks?

What did you or your advisor do to earn your returns from March 2009 until now?   Have you seen any risk management?

In May 2007 I warned you about the dangers of money managers who had never experienced a big bad bear market.   Now I am warning you about the new Newbies and an even more dangerous bunch….the negligent financial advisors, the people who are proud to tell me that they were long term investors and held on during the 2007-2009 decline and have been proven right as their portfolios have rebounded or recovered all their losses.   They did nothing on the way up (2003-2007), they did nothing on the way down (2007-2009) and they have done nothing on the way up again (March 2009 until now).

Take a hard look at your portfolio and your portfolio manager and yourself.   If you have a portfolio that went up or avoided significant loss that’s great.    However, make sure you can objectively say that there were strategies and actions that achieved those results, not blind luck.   We all have another chance to do better the next time around.

Over the past 10 months, there have been numerous times where stocks and the S&P 500 index finally start to take a dip.    And then, out of nowhere, the selling stops…on a dime without any substantial fundamental or technical reason and we have a sharp reversal to new highs.   I hate the line “don’t try to catch a falling knife” but in this case, knives are in freefall and the majority of times, they have been caught without a problem.   It’s not natural.  It’s like watching a ball drop from the ceiling only to stop after 3 feet in mid-air and then float rapidly back to the ceiling.   It’s not natural, but it keeps happening.  Bulls would probably see this as some evidence of their superior strength or mention some bullshit like “normal profit taking” or “buying on the dips” or “bargain hunting” or “squeezing the shorts” or  “all that cash on the sidelines” coming in from those that have “missed the train.”   Come up with whatever explanation you want.  I look at more technicals than anyone else and I am telling you that there is no good explanation for this phenomenon.   To me, it looks like a bunch of investors who try to dump their overpriced crap from time to time and quickly see that it’s not going to work…the selling stops and prices reinflate.   Since March, it’s worked for the index and it’s worked for thousands of stocks.   Sooner or later, the cessation of selling on the dips will not happen and I hope you are able to recognize it.