The market is either on the cusp of a reversal, or it is in serious trouble. That's some great insight, huh? Can you believe this information is still free?
Many of the short term indicators I follow are giving buy signals which is certainly a positive. (See yesterday's comments toward the bottom of the page for a couple.) The problem comes when the market doesn't rally from these oversold levels. It usually means trouble for the longer term.
There was an attempt at a reversal yesterday as the S&P 500 closed well above its low. I thought it was interesting that both the day's high and low were hit a second time and held.
It would have been nice if the strong rally that started just before 2 PM kept right on going into the close. Instead it petered out and the the index closed relatively flat. The lack of follow-thru is somewhat disappointing so we'll see what today brings. I think a move above 1179 Friday could ignite the bounce. One positive was that the semiconductors and tech stocks did well yesterday. A rally can't start until tech is ready to join in.
Like I said the lack of a bounce is a concern but we are so very due for a bounce. It's a matter of when not if, and also how much downside we might see before it comes. That's the risk of being anticipatory.
A couple of weeks ago I mentioned that the number of stocks making new highs was slowly moving down even as the indices continued to move up. That was a red flag. Now we have a different situation. Sentimentrader.com com tells us that only 4% of NYSE stocks that made either a new 52-week high or 52-week low on Wednesday were new highs (96% were new lows), an extremely low number that has been matched on only 15 other days in the past 7 years. One month later the S&P was higher every time by an average of +9.0%. That's not to say it worked that way throughout history, however. There were some years (such as 1966, 1973, 1974 and 1990) where it was a pretty good sell signal. Again, we are due for a bounce, but if we don't get one...
The S fund is now down over 6% in October. I decided to look at some historical TSP returns during other periods when the funds took such a hit. Back in 2002 we had a dreadful six month period. I like to buy weakness but that is not always the best strategy as 2002 showed us. It's no surprise that I lost 16% in my TSP account that year (The S&P 500 was down 23%). Buying the dips usually works, but when it doesn't...
| 2002 |
G Fund % |
F Fund % |
C Fund % |
S Fund % |
I Fund % |
| April | 0.46 | 1.89 | -6.06 | -1.06 | 0.25 |
| May | 0.45 | 0.88 | -0.75 | -2.39 | 1.29 |
| June | 0.43 | 0.97 | -7.10 | -6.67 | -3.87 |
| July | 0.43 | 1.19 | -7.70 | -9.93 | -9.99 |
| August | 0.40 | 1.58 | 0.67 | 0.58 | -0.26 |
| September | 0.37 | 1.63 | -10.87 | -6.84 | -10.75 |
These sell off are the exception, not the rule, and the market is in
a completely different situation than it was in 2002. But we still
have to be careful and it is why I plan to sell a rally. If the
S&P 500 makes it back to 1200 - 1205, I will be satisfied and take my
profits. I hope it will be as easy as it sounds, but it rarely is.
Bonds took another tumble and the chart really looks bad. The
reason I am using the F fund is the same reason I like stocks here.
They have come down very hard recently and the herd is very bearish on
bonds. That is what tends to start a rally.
One more thing, the AAII Investor Sentiment Survey is now 39%
bullish, 48% bearish. That 48% bearish is a bullish sign (I know,
that's confusing). It is the highest reading since mid-March.
Investors are finally getting nervous.
Another big move down will tempt me to put the 30% I have in the bond
fund, into stocks. Yesterday was somewhat of a panic sell off
reversal. If the market can rally out of the gate again it could
be the start of that short term rally. So either way I'm looking
for an excuse to get to 100% stocks. I will likely get the S fund
involved as small cap stocks have been hit pretty hard here lately as I
mentioned. It's a risk but the potential reward may be worth it.
After several months of being relatively idle in the G fund, I am
excited to do a little trading now that things are happening.
Volatile markets can make or break you so be careful.
That's all for today. Currently 30%
F,
70% C fund. I will be looking for an opportunity
to move to 100% stocks in the near future. Thanks for reading.
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