Late selling worrisome

The last two days of trading have seen some impressive mid-day rallies that ended in a complete meltdown by the close. 

On Friday the Dow rebounded all the way back to even, from an earlier 200+ point decline, but in the last 20 minutes, a massive sell-off took it back over the 200 point loss level.  Yesterday we saw an early 120-point rally turn south again during the last hour of trading.

        

The reason this is so concerning is that the late trading is considered the "smart money" and if the smart money is selling strength, you'd think we should be doing the same.

The recent sell-off, as bad as it has felt, is still above the lows made in August, but the shorter term has now seen a series of lower highs and lower lows, which means we are in a down trend.

                                    Chart provided courtesy of www.decisionpoint.com
       
As I talked about last week, you could break this market down into different time frames and come to different conclusions.  The short-term is getting quite oversold, which should give us some sort of relief rally any day now. 

The intermediate-term is the one that turned bearish with the new downtrend.  And if you step back further you can see on the chart below that the long-term bullish uptrend is still intact. The S&P 500 closed yesterday at 1439, and the support for the long-term bullish trend is just above 1400.  I would be surprised if we penetrated that level on a closing basis, but on an intraday basis, it could be what this market needs to stimulate a panic type bottom - something we really haven't seen yet - one like we saw in August.  The selling has been orderly, but we haven't seen any capitulation from the herd yet.  They are getting bearish, but only enough to stimulate a temporary rally.  The day you decide you don't want to risk any more more money in stocks, is going to be close to the time you should be in stocks - for the longer term.  No pain, no gain.


                                    Chart provided courtesy of www.decisionpoint.com


The dollar showed a little strength yesterday and is certainly due for a little rally.  The selling has been almost relentless for about three to six months.  Like stocks, when no one wants something, it could be time to buy.  Not that the dollar is going to start a big uptrend, but an oversold rally would not be unusual here.  So, be careful in the I-fund for a little while.  The I-fund benefits from a falling dollar and suffers from a rising dollar.


                                    Chart provided courtesy of www.decisionpoint.com


The problem the dollar has is it tends to get weaker as interest rates fall.  With the Fed cutting rates to help the economic and credit situations, the fundamentals are not in place for any time of long term strength in the dollar.

The TSP Talk Sentiment Survey is on a buy signal this week after last week's poll.  The results were 33% bulls, 52% bears for a 0.63 to 1 bulls to bears ratio.  That is the lowest ratio since mid-September of 2006.  The market made a heck of a run for nearly six months after that.

That's all for today.  See you tomorrow.
 

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