No buyers left

Mogambo points out a potentially significant synchronicity:

Samex Capital has observed that mutual fund cash levels have again reached historic lows. According to the Investment Company Institute, mutual funds decreased the amount of cash on hand to very low levels. How low? Well, cash is 2% LESS than what they are required to hold! They have sunk more than every available dime into the market!

Now, I am sure that there are lots and lots of very good reasons why this could be so. After all, they are hotshot investment type guys pulling down the big money because they are so smart and handsome and bathe regularly, and I am just a guy sorting through the neighbor’s trash as my tentative entry into the lucrative “identity theft” racket. But the stock market has been flat, despite all of this buying, and so that means that somebody was taking money OUT of the market at the same time as all this money was flowing INTO the market. Hmmm I smell a big, fat, stinking conspiracy here! Only this time it does NOT involve brain-sucking lizards from outer space or the CIA.

Samex writes, “This is only the third time in history that mutual fund cash-to-assets ratios have been this low. December 1972 marked the high point for more than a decade, and was followed by a 50% loss. March 2000 has marked the high point for more than five years to date and was followed by a 50% loss.”

I suppose a few people will rightly point out that I completely jumped the gun on the likelihood of the stock market’s imminent decline two years ago. I’ve noticed that this is a continuing pattern among bears and wave theorists, which I suspect is due to overthinking things.

Mogambo, who is not a big-time waver, nevertheless outlined the basic Elliott principle rather nicely in this piece when he pointed out that the usual wave 2 correction to wave 1 move was a .618 percent retracement, so the corrective rally to the S&P 500’s 777-point bear move from 1552.87 on 03/24/00 to 775.80 on 10/09/02 would be expected to top out around 1256. It’s taken an amazingly long time to get there, but two weeks ago, on August 3rd, the SPX hit 1245.86.

Is it possible that the wave theory could be correct in spite of its advocates’ innacurate predictions? Have they simply been unable to apply it correctly? It’s impossible to say. But a number of signs do appear to be pointing in a distinctly negative direction.