Printer friendlyThings are about as neutral, mixed, and undecided as you'll ever see them. The short term is a real coin flip. Today the Fed's interest rate decision and the verbiage they use to hint toward future action will be a catalyst for the next move. We just don't know if that will be up or down.
As always, the interest rate announcement will not be given until 2:15 PM ET which means the TSP deadline will be behind us before we hear the news. That would mean a day and a half of trading before your new allocation would take affect. So if you have any ideas of using the announcement to make a decision on your account allocation, you are basically forced to make a guess.
The large stocks of the Dow and even Dow Transports are still pulling back more than the smaller stocks. The Dow is now about 1.84% off its high, while the small cap index Russell 2000 is just .57% off its high. I'm not making any guesses on exactly what that means, but one will likely move closer to the other in the days ahead.
The bond fund was flat Monday after being down earlier in the day. The late bounce came from the point I had hoped would act as support. Let's see if it can hold and move higher from here.
Charts provided courtesy of www.decisionpoint.com
The dollar fell off a cliff yesterday as the strong support finally gave way. This helped the I fund to a big day. The I fund has been on fire and until recently, the dollar has actually kept it down some.
Charts provided courtesy of www.decisionpoint.com
The dollar could chop around for a couple days but my guess is we may see the next support level tested (near 89) very quickly. It's still too early to tell if this is a longer term top but if you are bullish on stocks in the short term, the I fund may get the benefit of a falling dollar over the next few of weeks.
I can't say I'm not tempted to jump into stocks now that we've been consolidating for a couple of weeks, especially if I knew that The Fed announcement would send stocks down this afternoon. Remember, in the days following a Fed rate change, stocks tend to reverse the initial knee-jerk reaction. It would be nice to know a little earlier what is going to happen. My longer term buy and hold return is up about 9% this year, but my actual trading account return is flat lining and could use some defibrillation. It would be nice to catch a rally now, but to jump in and take a hit on stocks after waiting this long? ... Well, it would actually matter little to my account but it would be a disaster for me professionally.
As always, I'd rather you took the information I provide and make a decision that would be best for you. Most of you have done that this year and have a much better 2005 return than I have had. That makes me a bit envious, but also quite proud. Way to go! I receive thank you emails almost daily and I'm a little embarrassed about that considering my results for the year. But I started to realize what I was doing so I put it on the home page... Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.
That's all for today. Currently 100% F fund. Thanks for reading.
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Prior Day's Market Comments (see archives on left for earlier comments)
We have a very interesting week ahead for the market
Once again the indices were able to bounce off of the short term oversold conditions. That generally means the market is still in good shape. Technically the S&P 500 chart did not make a lower low which is also good. Short term that could mean another push higher, perhaps to the upper end of the recent trading range. Maybe higher. It's starting to look similar to the 2004 Nov/Dec chop prior to the Christmas rally.
Charts provided courtesy of www.decisionpoint.com
I still believe that traders and investors remember the January 2005 sell off we saw after the extreme overbought readings in late December last year. That could trigger earlier profit taking this year to avoid getting caught above the trap door we saw the first few days last January.
This is a tough situation for the traders out there. Many of the shorter term indicators are looking much better after the recent two week sideways action we've had. The Overbought/oversold indicator and the McClellan Oscillator are back into neutral territory. The 10-day ARMS index has come way off its overbought reading (but not at a buy signal).
Charts provided courtesy of www.decisionpoint.com
It is tempting to jump in for a play but of course there are several items on my list of "be carefuls." For one thing this is the worst week of December historically. Seasonality is a secondary indicator but always something to keep in the back of your mind. Today (Monday) happens to be the 8th trading day of the month...
Chart provided courtesy of www.sentimentrader.com
Another warning sign is that commercial traders (usually considered smart money) have been increasing their short positions, at an average of about $6 billion per week since October. This isn't out of the ordinary as commercials get progressively shorter as the market rallies, as they hedge underlying long positions.
It is when these positions reach an extreme that we should sit up and take notice, and we are near such a point now. As of this past Tuesday, these traders were net short index futures by $27 billion. This is the largest net short position since late last year. We'd have to go back to the kickoff of the bear market in late 2000 and early 2001 to see other instances of such extreme shorts.
Chart provided courtesy of
www.sentimentrader.com
So as I have been saying, this should be an interesting week. We
have the Fed meeting Tuesday and we are likely to see another rate hike.
I will proceed with caution again. This has become rather boring
but again I am waiting for a more clear cut long term buy signal before
I get too aggressive.
The transfer into the bond fund last week turned out
to be a worst case scenario. After my transfer Thursday morning
the big rally in bonds on Thursday afternoon brought on a pullback in
bonds Friday,
as I feared. A .04 loss in the bond fund is about as bad as it gets.
My timing is unreal and it is partially attributed to the 12 noon
deadline, and mostly to my greed of trying to anticipate a bond rally.
This is why I have been tentative to take chances lately. I like
getting that safe G fund gain until my indicators get bullish again.
But that's the way it goes. You take a chance, you can get hurt. Bonds
now have to move higher next week or the higher low will not hold
and I'll have to bail
(see chart in lest weeks comments below). Currently it is still OK.
We'll see if today, the day before the Fed meeting, spooks bond market
again.
It should be an interesting week.
Let's watch and learn.
That's all for today.
Currently
100% F fund. Thanks for reading.
Chart provided courtesy of
www.sentimentrader.com
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