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What the Return of Money Managers Means for Investors

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Be defensive, protect your profits until the impact is fully understood.

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On August 9, when I headed out for countries and parts unknown, the intraday high on the cash S&P 500 was 1018. Tuesday, upon my return, the low posted this day after Labor Day was 1018. Sell in May and go away -- not on your life. Not with the move off the July 13 low. But with the market debacle known as 2008, the chances of a big giveback in the markets were minimal in August as I pointed out in the commentary and charts I posted throughout July. In fact, my S&P 500 level of initial support at 950 was never tested.

Why did August hold, with the S&P 500 dip to 978 and the run to 1039? Far brighter columnist on this excellent site than me have opined and explained their market interpretations. Was it purely a function of technical analysis? Perhaps it was the correlation between the dollar, oil, and gold? Many could argue it's the growing consensus of Washington gridlock and the demise of the Obama "Public Option" for health care and his Cap and Trade policies? Others could argue it's the Fed's policies, the various stimulus packages, the revival of the housing market, China, or commodity prices.

More simplistically (and trite) is the simple fact that it's a market of stocks more than it's a stock market. But to take that simplistic approach one step further, I can attest that the "Big Boys" -- and by that I mean the head fund managers, the institutional hot shots, head traders, and the chief investment officers running billions of investment dollars – weren't at their desks. How do I know? Because I was taking (or paying them) their money on the golf course, sailing or fishing with several of them off the coast, and untangling fly-fishing lines out of tree limbs.

Whether you were in the Hamptons, the Cape, the Vineyard, the Outer Banks, or mountains of North Carolina, Aspen, Vail, Steamboat, Jackson Hole, Calgary, the UP of Michigan, Quebec, Rangeley or Bar Harbor, Maine, to name a few hiding places, they were all there.

For most of August, the trading desks were being manned by the third string, the volume was historically low, and no big bets were being made unless they were in on the deal, investment bankers or venture capitalists. In other words, it was the month of August. And make no mistake: August isn't over for many of these money moguls. Most of their children don't start school until later this week and as far as they're concerned, that equates to next Monday. Just watch the daily volume and you'll know. But rest assured, they haven't returned en mass.

So what does this mean for us? As always, it depends upon your time frame. But as a long-term dividend-oriented investor or as a trader, it could mean a quick shift in market psychology and sentiment when the money managers do finally return. In any event, as an investor, it makes me more defensive and inclined to protect profits until I fully understand the impact of their return and their defined market approach. I'm feeling (and hearing) crosscurrents at a crossroads for the market and I'm not seeing a clear path to follow.

Have you ever been hiking or biking on a trail and come to a crossroads with a rickety old sign that didn't look trustworthy? You know, the signs nailed to the post, pointing in different directions back to camp or deeper into the woods if you wanted to explore the caves? Of course, it's getting late and you're looking for a way home, not a way to take more risk. I believe we're at that moment in the markets and there are many signs I don't like -- and even more I don't trust.
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Positions in SDS, AAPL, FCX, HSY.

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