When will the bear market be over?
Stocks
rallied again on Friday making Thanksgiving week one of the most
bullish weeks in many, many years. We know bear markets can
have explosive rallies. So, is that what this was, or is the
bottom in?
There are many things lining up suggesting that this market may have
put in a bottom, but we are in a bear market and we have absolutely
no proof that the bear market is over. That means we are also
still in a "sell the rallies" mode until something tells us
otherwise. The indicators that we would be viewing to tell us if we are in a new bull market will take weeks, months, or even years to turn.
Sure we could miss out on some gains if we sit on the sidelines
while the market turns from bear to bull, but bear markets don't
turn on a dime. The bottoming process is a long one and we
will get our opportunities when the indicators confirm it.
So what are we
looking for? Someone asked this on our
message board the other day
so I'll assume others would like to know as well:
In January of this year, the 50-day moving average (purple line
below) crossed below the 200-day moving average (blue line).
There were no fireworks or news headlines, but that is one of the
signs that a market is turning from a bull market, into a bear
market. This crossover does not come at the market top, but it
did happen while the S&P 500 was still over 1400, and as you know,
we have dropped as low as 741 recently. At about the same time
the 200-day moving average started to slope downward. That is
another sign that a bear market has started, and usually coincides
with the 50 crossing below the 200.
Chart provided courtesy of
www.decisionpoint.com
So, we can try to call a bottom, but until the 50-day moving average
crosses back above the 200-day moving average and / or the 200-day
moving average starts to slope upward, we are still considered in a
bear market and we will want to sell rallies.
The 50-day moving average is currently at about 966 and the 200-day
moving average is about 1187. Both are still moving downward
which is why I said that we are weeks, months, if not years away
from calling this a new bull market. That is not to say that
money can not be made in stocks during these bear market rallies.
It's just that the long-term trend remains down.
The TSP limits really got me good in November, but I did not follow
my plan and it cost me. How many times did I say that we could
be setting up for a Thanksgiving week rally? But did I listen?
No. I ran out of transfers before the week showed up and I
missed some great potential gains. Now we start off December
with a new set of transfers, but with a market that is getting
overbought.
I want to go over something that I think some people may not be
aware of. The TSP allows us 2 transfers per month, but we are
also allowed to make additional transfers after #2, if it is moving
money into the G-fund, and no other fund is increasing.
The winner of our November
returns contest actually made 6 interfund transfers
during the month, and the TSP will allow this. He gained
nearly 11% for the month
and here are the transfers he made:
Nov-05 100% G (transfer #1)
Nov-20 100% C (transfer #2)
He made his initial 2 transfers and
was now able to make additional transfers, as long as they
were increasing the G-fund allocation, without increasing any other
fund's allocation. You can see below that the G-fund
percentage went up with each transfer, while the C-fund's went down:
Nov-21 50% G, 50% C (transfer #3)
Nov-24 75% G, 25% C (transfer #4)
Nov-25 85% G, 15% C (transfer #5)
Nov-28 100% G (transfer #6)
So if you have made your two transfers for any given month and still
have money in any other fund other than the G-fund, you can still make
additional transfers into the G fund - all at once or slowly. The
problem comes when you are already 100% in the G-fund, you are out
of transfers, and you want to get back into the stock funds, which
is what happened to me in November.
As far as where the market goes from here, we have indicators that are getting overbought in the short-term, but early
December has a positive bias and momentum is starting to build for
the bulls. The S&P 500 has now had 5 consecutive positive days, something
we haven't seen for a long time, but when the overbought / oversold
indicator starts to reach toward the 500 level, it has been a good
idea to move back on defense.
Chart provided courtesy of
www.decisionpoint.com
That's all for today. Thanks for reading. We'll see you here tomorrow.
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