Market Update 11.28.10

For the last two weeks our BFIA measures had been bearish on the global financial markets. Our long-term view is long. We have been seeing similar dynamics to the May Flash crash dynamics. It has been two weeks since we first sighted that similarity and it had played out as we thought. Going forward we believe it will continue to follow those dynamics which means this week will be an up week and next week will be a down week. We have already covered our short position.

The markets we like continue to be the following:
Indonesia, Malaysia, South Africa, Mexico, and Chile.

We have decreased out exposures to India and Turkey. We did that before the large decreases in shares prices of those ETFs.

No hedge for the week. To see if we should hedge next week tune in next week.

Market Update 11.21.10

For the past several months BFIA has been a bull on India. Since that time India has gone up considerably. We currently see dynamics in India to start scaling back the over weighting. BFIA likes Indonesia, South Africa, Malaysia, and Mexico.

BFIA has also been a bull on US high yield fixed income. BFIA believe that trade does not have much more room to grow. Based on our measures we have not seen our bond measures this high in our history of data, indicating that it is over valued. Therefore, BFIA has decided to sell off that position. BFIA earned about 20% in a one year period investing fixed income.

What is our prediction of this week. Last week, we predicted a major downside dynamics which we saw last Tuesday. BFIA believed it was seeing dynamics similar to May. Based on our current measures we are now receiving mixed signals. One measure is predicting that this week will be similar to the second week in May which declined about 2.0%. About 80% of that week which means a 1.6% decline for the week. However, our sentiment measures are moving away from the May numbers which suggests the dynamics will not be similar. This may mean that the market will sway back and forth for the week.

11/14/10 Market Update

We are finding that the US stock dynamics today are almost exact to the dynamics on May 3, 2010, right before the flash crash. The magnitude is not the same. However, this means there is downside risk to come. Our long measures are saying to currently stay in all markets. However, we believe one should hedge their positions until we see dynamics change again.

BFIA measure Sentiment Change from last week
May 2 0.94 0.048 16%
Nov 14 0.94 0.045 13%

Market Update 11.08.10

At BFIA we exploit behavioral biases to detect long-term investment cycles. The major investment cycle we have been talking over this year has been in the Asian markets with India being the biggest and Malaysia, South Korea, Indonesia, and Thailand being the other Asian markets we like. We also have talked about Turkey and it is our second biggest position.

We are still sticking with this investment cycle even with the recent run up in these markets.

We also like to look at our agent-based behavioral measure each week to determine where the US market is currently standing. Even with the recent run up we still see the US as undervalued. One key concern is that the dynamics of our measure look similar to the dynamics in April of this year. We are currently at 0.914 and the measure was at 0.946 at the beginning of May. Once we hit 0.946 again we will look for any signs within our behavioral measures to determine whether there will be a large pullback.