This market is looking rather ill but the short term is getting oversold. There is no rule that says the market can't fall further when it is oversold so caution is still the play for U.S. stocks, but I can't get that 1994 S&P 500 chart out of my head that showed wild swings at this point during that year's market consolidation, which has closely mirrored this year's action.
Chart provided courtesy of www.decisionpoint.com
If you compare the action up to early October above to this year's chart, you will see there was a very strong and tricky rally before the next push down.
Chart provided courtesy of www.decisionpoint.com
It is difficult enough to play swings like this without a handicap, but our TSP accounts make it that much more difficult due to the mid-day deadline, and is why sometimes we would have to be a little anticipatory rather than reactionary when "trading."
Speaking of the mid-day deadline, I did explain my Friday potential I fund debacle but to reiterate, I moved into the I fund because on Friday morning it appeared the US market was reversing to the upside. Since I couldn't take advantage of it in the C and S funds, I tried to make a move to the I fund which can benefit from late US market reversals. That's because the European and Asian markets are typically closed during US market hours so they have to play catch up the following trading day. It turns out that:
1) The US market gave back most of the early gains after the deadline Friday, and 2) The Japanese market was closed Monday (Sunday night US time) due to a National holiday.
Who knew? FYI, as I write this on Monday night, Japan is up almost 1% with a couple hours left in their trading day.
I mentioned the Friday jobs report yesterday and wanted to touch on it again today. I hate to sound like a broken record each month when discussing the market action after one of these employment reports but I know we have new readers joining us each day. I want them to understand these concepts.
The Friday employment report beat estimates by over 100,000 jobs to the upside. We knew the hurricanes would make this an atypical report, but this is a significant miss.
During the past three years:
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Three days after a large surprise in the jobs report of 50,000 jobs, up or down, the S&P 500 was higher only 5 out of 18 times. Its average return was minus 0.5%. Markets don’t like surprises because they create uncertainty.
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Ten days after a negative surprise of 50K jobs or more, the S&P was higher 55% of the time. Ten days after a positive surprise of 50K or more, it was lower 58% of the time.
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Ninety days after a large negative surprise, the S&P showed an average return of +5.1%. Ninety days after a large positive surprise, its average return was 1.7%.
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The correlation between surprises in the jobs number and 90-day returns in the S&P 500 has been -.32. This means that the more positive the surprise, the more negative the performance in the S&P and vice-versa. Given the sample size, this is significant.
So we are not out of the
water yet. I will look for some sort of washout panic selling
morning to get back into the S and or C funds for a short term
trade. If you take a look at the October seasonality chart at
the bottom of this page you will see that today has that potential.
It happens to be the 7th trading day in October.
That's all for today. Currently 30% G,
70% I fund. Thanks for reading.
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