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The indicators are stretched
I hope everyone enjoyed their holiday weekend. The market certainly enjoyed Thanksgiving week living up to its historical seasonal strength. It was even more impressive given how high the market had moved leading up to the holiday week.
Whether you are bullish or bearish, the market is in desperate need of a rest. With the holiday behind us, it could mean that we may finally see a pullback. I know... you've heard that before.
Remember this Thanksgiving performance chart? Even history says we need a rest.
Chart provided courtesy of www.sentimentrader.com
Looking forward to next month, December tends to do better during the second half of the month with a negative average dip in mid-month.
I mentioned the 10-day moving average of the ARMs index last week. Looking at the chart you can see the indicator is at a point not seen since early 2004. That triggered a pullback in stocks in '04 and the market did not make a higher high for about ten months after that signal below .80. The market always has a difficult time moving much higher when this indicator reaches this point.
The indicators have failed me to some degree lately and it caused me to miss these great recent gains. I was was so focused on seeing more of a serious pullback, and at the least, a small pullback to buy into once I realized I was wrong. But the market has basically gone straight up for the past several weeks giving little opportunity. I hate to chase a runaway market.
If you look at the buy signals in the chart above, a reading of 1.30 or higher, you will notice that the lows in October did not trigger a buy signal from the ARMs index, one I consider a major indicator. The last buy signal was all the way back in April. You can see that in In 2004 we had much clearer signals.
This is one of the reasons I was reluctant to jump in an expected one more push down. Now I am actually changing my intermediate term outlook. Because of what I see happening now with the majority of the indicators, I believe the market will either fall hard in the coming weeks, or the big long term rally I have been expecting to begin late this year or early 2006, may have to wait a bit longer. This recent rally has only been a short term move, so far. Denial? Maybe.
I'm not saying I'm getting bearish for the long term. I just think the consolidation will continue until the psychology leg (sentiment, put/call ratios, Rydex ratios) and the monetary leg (interest rates, MZM money supply) move into better position, and the overbought/oversold indicators move back toward oversold. So, I am bearish for the short term but again I believe the next move down will set up a great multiyear bull market.
For now, I am seriously considering getting into the F fund as bonds look tempting. They are coming up against some strong resistance now so I want to watch them for a day or more to see how they react to that resistance.
Chart provided courtesy of www.decisionpoint.com
Is this latest bounce the start of a respectable move up, or merely a dead cat bounce? How the 30-year bond reacts to the 50 and 200 day moving averages, and the the old support, now resistance, line (in green) will give us a better answer. That 114 level is key.
The recent rally has left me and many of you behind. Because of this my return is an inexcusable 1/2% for the year. It seemed like only yesterday that I was beating the S&P by 2%, but November saw it pass me right up. My hope is that many of you longer term, buy and hold, investors used my longer term suggested allocation, which has been 15% G, 35% C, 25% S and 25% I fund all year. It is up about 8% for the year. I'm thinking in 2006 that that 15% in the G fund will move down to 0%. That is if we ever get that pullback.
Hang in there fellow G fund dwellers. We will have our day eventually.
That's all for today. Currently 100% G fund. Thanks for reading. See you tomorrow.
I hope everyone enjoyed their holiday weekend. The market certainly enjoyed Thanksgiving week living up to its historical seasonal strength. It was even more impressive given how high the market had moved leading up to the holiday week.
Whether you are bullish or bearish, the market is in desperate need of a rest. With the holiday behind us, it could mean that we may finally see a pullback. I know... you've heard that before.
Remember this Thanksgiving performance chart? Even history says we need a rest.
Chart provided courtesy of www.sentimentrader.com
Looking forward to next month, December tends to do better during the second half of the month with a negative average dip in mid-month.
I mentioned the 10-day moving average of the ARMs index last week. Looking at the chart you can see the indicator is at a point not seen since early 2004. That triggered a pullback in stocks in '04 and the market did not make a higher high for about ten months after that signal below .80. The market always has a difficult time moving much higher when this indicator reaches this point.
The indicators have failed me to some degree lately and it caused me to miss these great recent gains. I was was so focused on seeing more of a serious pullback, and at the least, a small pullback to buy into once I realized I was wrong. But the market has basically gone straight up for the past several weeks giving little opportunity. I hate to chase a runaway market.
If you look at the buy signals in the chart above, a reading of 1.30 or higher, you will notice that the lows in October did not trigger a buy signal from the ARMs index, one I consider a major indicator. The last buy signal was all the way back in April. You can see that in In 2004 we had much clearer signals.
This is one of the reasons I was reluctant to jump in an expected one more push down. Now I am actually changing my intermediate term outlook. Because of what I see happening now with the majority of the indicators, I believe the market will either fall hard in the coming weeks, or the big long term rally I have been expecting to begin late this year or early 2006, may have to wait a bit longer. This recent rally has only been a short term move, so far. Denial? Maybe.
I'm not saying I'm getting bearish for the long term. I just think the consolidation will continue until the psychology leg (sentiment, put/call ratios, Rydex ratios) and the monetary leg (interest rates, MZM money supply) move into better position, and the overbought/oversold indicators move back toward oversold. So, I am bearish for the short term but again I believe the next move down will set up a great multiyear bull market.
For now, I am seriously considering getting into the F fund as bonds look tempting. They are coming up against some strong resistance now so I want to watch them for a day or more to see how they react to that resistance.
Chart provided courtesy of www.decisionpoint.com
Is this latest bounce the start of a respectable move up, or merely a dead cat bounce? How the 30-year bond reacts to the 50 and 200 day moving averages, and the the old support, now resistance, line (in green) will give us a better answer. That 114 level is key.
The recent rally has left me and many of you behind. Because of this my return is an inexcusable 1/2% for the year. It seemed like only yesterday that I was beating the S&P by 2%, but November saw it pass me right up. My hope is that many of you longer term, buy and hold, investors used my longer term suggested allocation, which has been 15% G, 35% C, 25% S and 25% I fund all year. It is up about 8% for the year. I'm thinking in 2006 that that 15% in the G fund will move down to 0%. That is if we ever get that pullback.
Hang in there fellow G fund dwellers. We will have our day eventually.
That's all for today. Currently 100% G fund. Thanks for reading. See you tomorrow.
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