The next few weeks could continue to be quite volatile as the bears keep fighting their case, the weak bulls continue to give up, and bargain hunters continue to buy. Next week we get to witness another almost certain interest rate hike from the Fed. That should provide more fireworks. Your emotions will indeed be tested.
I read an interesting article by Jeff Hays which stated that history has shown the stock market tends to go up when there is one more Fed tightening (interest rate hike) in front of us. Let's revisit the 1994 chart...
Chart provided courtesy of www.decisionpoint.com
In November of 1994 the market took one more nose dive within a week after the Fed's 2nd to last rate hike. That nose dive led to a bottom and to the beginning of a very strong bull market that lasted for several years. Six weeks later, in February 1995, Greenspan dished out one more rate hike but by that time the market was already on its way up.
It turned out that Greenspan went too far in 1994/1995, just as some believe he is doing today. By July of 1995, the Fed actually started to lower rates to try to revive the economy he had slowed to a crawl with those rate hikes.
You can put this one in the useless information category:
I have noticed that the market is not only not following the
historical seasonality data this month, but it seems to be doing close to the opposite.
The normally strong first week of October was downright ugly.
The 13th trading day in October has a very negative bias but this year
it was the huge 1.5% up day we had this past Wednesday. Thursday the 20th
was the 14th trading day in October and is usually very strong. It
was the day we gave back all of Wednesday's gains.
Chart provided courtesy of
www.sentimentrader.com
I don't remember where I've heard it but during options
expiration week, Thursday does tend to reverse Wednesday's action.
I've never seen a finer example than we saw last week. But back to
the chart; In general, the week following options expiration week tends
to be weaker than a random week. Historical stats show us that
October seems to magnify that quite a bit. But if we are running opposite to
historical data this month...
I frequently quote and show charts from sentimentrader.com. They
have an indicator that is an accumulation of all their sentiment
indicators. When the accumulation of their smart money indicator
goes above 60%, and the accumulation of their dumb money indicator falls
below 40%, it gives them a buy signal. That is because the dumb
money tends to be most nervous and bearish near market bottoms, and the
smart money is correct more often.
It doesn't happen often,
maybe a couple of times a year, but the current figures are smart
money 67%, dumb money 32%. It's the first buy signal since last
April's low.
Chart provided courtesy of
www.sentimentrader.com
I am sticking with my 100% stock fund allocation for now. We may
get another short term sell signal soon if you do decide to do a little
trading. We'll see if we can get a good rally to sell.
Otherwise I am still leaning toward a long term bull market in front of
us. But again, it could take a few weeks for this bottom to play
out.
**
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That's all for today. Currently
40%
C,
30% S and 30% I fund. Thanks for reading.
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