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Fund share prices as of: 10/19/07
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Today's Comments (Short Term Outlook)
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Crash anniversary
flashback As you probably heard, last Friday was the 20th anniversary of the 1987 stock market crash. The market responded with a little crash of its own this year. Well, even "little crash" is an exaggeration. The Dow dropped 508 points on that October day in 1987 compared to 367 points this year. But that is where the comparisons end. This year it was a 2.6% hiccup compared to 1987's 22.6% decline. Whenever a Friday is down big, and ends the day near its lows of the day, you tend to get a hangover on Monday morning. The weekend warriors are reading their Sunday papers, seeing that the market started to head down again. They use this rearview mirror analysis and do some panic selling and this is something the TSP has been worrying about - People selling after the damage is already done. On the other hand, we have been talking about the market needing a 2% to 3% "healthy" pullback after it's recent rocket move higher the last several weeks. That 2% to 3% has now turned into a stiff 5% decline so far and that is still reasonable. I would be surprised if we don't see a little rebound in the next day or two. But the panicking futures are deep in the red as I write this late Sunday night, so we will likely see a opening to the downside. Which isn't always a bad thing. I would be more worried if we opened slightly higher. An ugly opening has the affect of washing out the weaker bulls and then the selling will be overdone. Thursday's Sentiment Survey saw a neutral 1.30 bulls to bears ratio putting it just 0.05% from a 1.25% buy signal. There is no doubt that Friday's action would have been enough to put that system into a buy signal for this week, but officially, it remains on a sell signal for this week. When stocks do drop as precipitously as we saw Friday, damage is done - no doubt, and even a short-term rally does not get us out of the water completely. If you are out of stocks now looking for a opportunity to buy, you can be a little patient unless you are looking more for short-term - in and out - type trade.  Chart provided courtesy of www.decisionpoint.com Less active and buy and hold type investors should not panic. Last fall's straight up action was the anomaly, not this years up and down activity. I was burned last year staying on the sidelines anticipating this type of pullback that never happened. This is more "normal" market action. The market is oversold. That's a good short-term sign but as we talked about Friday, you have to be concerned about a market that does not rebound from oversold levels. It will be important for the market to pick up buyers and find support if we see a weak opening. Looking out a few days I can see us getting a relief rally. We'll have to keep an eye on the indicators to see what would be the best course of action if we do get that rally - this is, do we expect it to be short-lived, or will we get another "V" bottom and move straight up again? And speaking of "V" bottoms, will August's "V" bottom turn into a "W" bottom? That would mean another 5% to 10% down from here. I'm not sure if that will happen, but if it does, I want to be in stocks for the long-term as I feel that would be a major low for years to come. That's all for today. See you tomorrow. Have questions? Visit our message board for answers.
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