encik wan - Trading Developer on Global Investment and Technical Analysis

Conclusion: 100% cash for October 2011 asset allocation just like September 2011 asset allocation

Analysis:
I can almost hear the mumbling that I have committed the sin of leaving money idle. Before defending the decision to stay put at 100% cash, let’s review monthly charts of MSCI indices : US, Europe and Emerging market Asia.

MSCI indices (monthly) - US, Emerging market Asia, Europe (2011 Sep 30)

The downtrend has not been reverted. So I never catch a falling knife How about the argument of dollar cost averaging? This may work if I have a really long investment time frame, e.g. more than 10 years and there is fresh money into portfolio. However encikwan portfolio does meet both conditions. From the point of view of risk/reward ratio, the current entry point is also not attractive, e.g. 1:1 between short term resistance and suppor for MSCI US.

MSCI index (monthly) - US (2011 Sep 30)

So I ‘give up’ on equities, how about other asset classes?. From latest encikwan chart book, long term bonds are still overbought. Other bonds are around peaks of last 4 years. I do not buy at tops or chase performance. For SPDR Gold(GLD), iShares Silver(SLV) and PowerShares Agriculture(DBA), the lost during September 2011 is around 13.7%, 31% and 9.1% respectively. As I have said before, I do not catch falling knife even when I am bullish on these sectors for medium and long term. Stay tuned

Note : This is NOT investment advice. Details of asset allocation can be found here

It is understandable I am bearish on equities(at least in short term) after a two-digit correction for September 2011 asset allocation. How about other asset classes, e.g. bonds, commodities?

For bonds, encikwan portfolio is too late. Using 10-year US Treasury note yield as a proxy to global bonds due to US Federal Reserve as world central bank , it is at lowest point since 1995. See monthly TNX chart below.
10-year US Treasury note yield (monthly) - 2011-09-02.
The phenomenon of lowest interest for more than a decade is also confirmed by
3-month Singapore Interbank Offered Rate or SIBOR (1987 July - 2011 August). Tip - time to borrow as much as you can handle.

For commodities as represented by Continuous Commodity Index, it is interesting.
Continuous Commodity Index weekly chart - 20110902(CCI)

On one hand, precious metals like gold seem ‘unstoppable’, but oil and agriculture is not following due to fear of recession which will affect demands and US dollar is not ‘fall-off-a-cliff’.
‘SPDR Gold weekly - 20110902

iShares Silver weekly - 20110902

Light Crude Oil Spot weekly - 20110902

PowerShares Agriculture weekly - 20110902

USD weekly - 20110902

So should I follow hottest sectors? Of course, my answer is NO. Silver and agriculture will be interesting investment candidates in October 2011 if prices can move closer to their respective 50-day moving average and gold is not overbought, e.g. RSI < 60 (reason : silver may be hit together with gold in a correction).

Conclusion: 100% cash, e.g. no adjustment

Analysis:

MSCI indices (daily) - US, Emerging market Asia, Europe (2011 Aug 31)
A drop of around 20% for 3 major indices in one month warrants some caution. Since this is a monthly asset allocation review, e.g. no buy or sell except beginning of each month and there is no style restriction, e.g. must buy something, therefore 100% cash is a reasonable conclusion. Even there is a sharp rebound, it will not be done in September 2011. See monthly chart below. Another reason for less than 50% chance of sharp rebound is fear of spread of economic crisis from Europe.

MSCI indices (monthly) - US, Emerging market Asia, Europe (2011 Aug 31)

Note : This is NOT investment advice. Details of asset allocation can be found here