Trick or treat?

After a terrible first week in October, the S&P 500 has been bouncing back and forth between 1175 and 1200 since.  This is a good indication that strong support is being created and a bottom is close at hand.  November will be a welcome sight.  But with the Fed likely to raise interest rates Tuesday for the twelfth straight time in 16 months, this week could be either a trick or a treat. 

The last day October is a bit weaker than average but the first few trading days in November are very strong compared to a random day.  This puts the wind at the back of the bulls.  Now that we have completed the six weaker months of the year, the bulls will have that breeze at their backs for the next six.  That is never a primary deciding factor in where to put your money, but it can break the ties if you aren't sure.  


                            Chart provided courtesy of www.sentimentrader.com

Once again we have that short / long term conundrum.  We are entering a strong seasonal period for the market, the indices seem to be finding support, AAII surveys show investors near bearish highs for the year, oil and gas prices seem to be easing, and stock valuations are very attractive.  Sounds good and anyone looking at their TSP as a long term, buy and hold investment would be in a good position to add to their stock positions.

However, market bottoms are marked by high volatility as we have seen over the past several weeks, and I don't see a reason why it would end now, particularly with the Fed meeting Tuesday.  So, while the short term swing bit me in the butt last week by causing me to get whipsawed, nothing says the rally starts here.  We are merely toward the top of the recent trading range and until until the downtrend breaks to the upside, I'm still in the "buy weakness, sell the rallies" mode.  Last week reminded me how difficult that can be.

I'm a little disappointed that Thursday's 1% drop and missing Friday's rally brought my October return into the red at -.61%.  I have been in conservative mode since mid-June, so that was my first losing month in the last six.  Rats!  The C fund (S&P 500) did lose 2.34% in October (so far) but Friday's rally gave that fund a slight .20% lead over my annual return. 

While we are on the subject, the S&P 500 return is the benchmark return for most money mangers to try to achieve and beat.  It is a bit different in our case in that we can only trade funds where "real" money mangers try to beat that index by buying and selling individual stocks, which are much more volatile.  They also don't have to deal with morning deadlines when they trade as we do.  So over the last two months of the year, I may make what appears to be hasty transactions.  My return is how I am judged by most people, particularly newcomers.  If I can't beat the S&P 500 then why bother trading?  I know there is more to it than that but there has to be a way to keep score and that is one way to do it.

The main reason for my bobbing and weaving in and out of the stock funds is to avoid losses when I see yellow and red flags, and to get aggressive when I get the green light.  If the S&P 500 is up 35% in a given year, I want to get 30 to 40% myself.  If it is down 10% for the year, I'd like to avoid as much of that loss as possible.  Always being in the G fund will not get you the returns most of us need to retire.  Always being in stocks will put you on a rollercoaster at times.  There is a middle ground and that is my style.  Many people don't agree with it but there are many ways to invest and you have to find your comfort zone.  

Being mainly on the the sidelines for the past five months did not do much for my return, but it did put my account in a safe position while the market was flashing warning signs.  At times I missed rallies and at times I missed losses.  My indicators told me it was the proper play.  I hope that makes sense.

Well, Happy Halloween!  May the market hand you a treat rather than a trick this week.  Currently 100% G fund.  I am looking for something to flash to tell me to get back in stocks.  Preferably for me, that will be a sell off.  Thanks for reading.

Administrative Note:  We have a new Market Item today.  If the market is driving you to drink, today's item may help.  I appreciate your support!