Thrift Savings Plan Talk

Short term question market but longer term looking good.

A respectable rally yesterday but someone forgot to tell the I fund. That darn fund has my number. I am the first to admit that I am the "dumb money" when it comes to timing that sucker. The rallying dollar yesterday was a major influence. I wouldn't be surprised to the see the dollar give back some gains and the I fund rally back today. But that's the dumb money talking.

Back to the U.S. stocks. There was a struggle all day long yesterday but by the day's end, stocks closed at their highs. I'll call it the very short term wall of worry. So many people are expecting another push lower, including myself, that the forces are keeping stocks buoyant. Of course the indicators are very oversold and this wasn't a big surprise to us. I doubt it will last too much longer as I still anticipate a test of the lows before the next big rally can begin.

And speaking of the next big rally; I can probably post a half dozen charts showing very strong arguments why I am very bullish for the intermediate to long term. Whether the rally starts next week or in a couple of months, I don't know, but these charts are very encouraging.

Here's one I showed several weeks ago just prior to the late August rally. This is a ratio of the amount of assets in bears mutual funds plus assets in money markets, divided by assets in bullish mutual funds. There are now more assets not in stocks than in stocks. This is the most bearish reading (bullish for the market) in over two years.

Chart provided courtesy of www.decisionpoint.com

I have compared this year's market to 1994 so many times, and I'd love to show you it again but I'll resist the temptation, but instead I will show you a very long range S&P 500 price/earning ratio (P/E) chart that ties in 1994. Basically this chart shows the S&P 500 price divided by the S&P 500 earnings. What makes the P/E go down is either rising earnings, falling stock prices, or a combination of both. The opposite action would make the P/E climb. The current P/E ratio is 18.78.

Chart provided courtesy of www.decisionpoint.com

I couldn't help but notice that the last time the P/E ratio was over 20 and crossed back down below to this level was in.. you guessed it, 1994. Just before a big multi-year bull market. S&P earnings are rising at a nice rate and currently at all time highs while stocks have been basically flat for almost two years. Actually, the S&P 500 is where it was in the late 1990's. The current earnings for the S&P 500 is about $63. In the late 1990's it was under $40. Stocks are very undervalued when you compare the S&P 500 earnings yield to that of bond yields.

I could list a few more charts here but I'll bore with those another day. So with all this bullish talk, why do I expect another test of the lows? It's a pretty common occurrence at market bottoms but also I don't think we've seen sentiment hit rock bottom just yet. What would cause that? Maybe some poor earnings reports or perhaps another hurricane in the Gulf? Can you believe it? That is looking like the case as they predict that the west coast of Florida is a possible target.

I've got my finger on the eject button and it won't take too much more strength for me to lighten up on my stock holdings in anticipation of one more move down. Another 1% may be all I need to see. But this is a short term play. The long term is looking very good.

That's all for today. Currently 40% C, 30% S and 30% I fund. Thanks for reading.