This market is for the birds.

Was this a Bird Flu sell off?  I doubt it.  But this scare isn't helping.  Truth is this action was long overdue.  So now what?

I won't pretend to know when the market will bottom out.  Trying to picking a bottom can either be very rewarding or quite foolish.  Investors like to say it's like, "Trying to catch a falling knife."  A short term bounce is likely but it can also be a sucker bet.  Be careful.

From a technical standpoint, the S&P 500 is breaking down.  We now have a lower low after two recent lower highs.  That is not a great sign but not necessarily terrible for the long term.  I had been saying a move to at least the 200-day moving average would be a good place to consider getting back into stocks because technical breakdowns tend to bring on fear and panic selling.  In a bull market, these breakdowns can bring us to decent buying opportunities.  Take a look at this 2004/2005 chart...


                      Charts provided courtesy of www.decisionpoint.com

Any move below the the 200-day moving average in the last two years has brought us very close to at least a short to intermediate term bottom, but the areas marked A, B, and C show that we could linger for at least a week or more before a rally.  Any quick bounce up tended to lead to another move down.  Assuming we are remaining in a bull market and are not going to get an extended bear market, this is good.  With stock valuation where it is, and the improvement we are seeing in psychology and monetary conditions, I don't believe the downtrend will last much more than the month or two I mentioned yesterday.  I don't see a bear market for 2006.

I'll resist the temptation to show you that 1994 chart again (OK, it's at the bottom of the page) but do you remember the volatility the S&P experienced then?  After a big drop there was a week long rally, then another drop, another rally, a big drop...  You get the picture. 

To make things worse, the AAII Investor Sentiment Survey came in at nearly 2 to 1, bulls to bears - 50% bulls to 27% bears.  Where's the fear?

Bottom line:  Be carefully trying to catch the bottom.  You should get more than one opportunity to buy, even if you miss a reversal.  Moving in slowly is always a decent option. 

That's all for today.  Currently 100% G fund.  Thanks for reading.