Another test 

With yesterday's weakness in stocks, the short term market indicators are now quite oversold and during this latest rally the market has consistently responded to these levels with a bounce.  The intermediate term condition of the market could be determined by this next reaction.  If we do get a bounce, it may continue on through the holidays.  If the market can not respond positively to this oversold condition, it could mean we are in for a deeper correction.  (Remember the Chernobyl Prophesy we talked about last week?)

Speaking of the Chernobyl Prophesy, which takes the number of stocks making new 52-week highs and lows into consideration; on Monday 95 stocks made a new 52-week low, and 69 made a new 52-week high on the NYSE.  Again that is rather strange behavior for a market where the S&P 500 is just 1.5% off of a multi-year high.

As I mentioned in Monday's comments, I did make a move to the G fund which is effective today, to try to pick up the next penny gain in that fund.  It turned out that the G fund picked up the penny gain on Monday so my reason for making the move is lost, but since the F fund also picked up a penny gain, there's no harm, no foul.  The harm would come if the F fund has a big day today (while I'm in G).  The best case scenario is for the F fund to take a one day break and stay flat or even pull back a bit.

Whatever it does, my reason for being in the G fund, and out of the F fund, is over.  So I could be making a move right back into 100% F fund before Tuesday's deadline.  I know I'm playing some games here, but I did warn you that this would be a one day move.  With my return still floundering at the end of the year, I find myself scraping the bottom for pennies.

If the market does give us a bounce Tuesday morning, you might consider taking a shot that it is the beginning of a Christmas rally for the reasons I mentioned in the first paragraph.  I haven't decided exactly what I'll be doing yet.  I'd like to see what happens in the morning first.  So depending on what does happen, I will likely get back out of the G fund and either go back to 100% F fund, or put something into stocks. 

The S&P 500 is actually not in too bad of shape technically.  Things are deteriorating a bit but it is still above its 20-day moving average, which is still above the 50-day moving average, which is still above the 200-day moving average.  All positive.  But the moving averages do like to converge and breathe in and out.  We may be due for a little converging now.


                              Chart provided courtesy of www.decisionpoint.com

The S&P is really doing a similar dance to what we saw in late 2004.  The question is, will it play out the same where it was safe to be in stocks through the end of the year, before the the early January sell off?  Or will people want to lock in gains earlier this year so as to be the first ones out the door before any selling begins?  That would likely trigger an earlier sell off.  Good questions but nothing but just speculation on my part.

After a recent rally, oil is down about $5 a barrel is the last couple of days.  You would have thought that would have helped out stocks some.  Also the dollar has been treading water the past three days, unable to put together much of a bounce off of its recent drop.  If the drop to support plays out as I had anticipated, it may see a couple more days of weakness before the week is up.  There is a day old chart of the dollar down toward the bottom of this page if you want to get a picture of what I'm trying to say.

That's all for today.  Currently 100% G fund.  But look for another email alert quite soon as I plan to vacate the G fund.  Thanks for reading. 

Administrative note:  Thanks to all of you who volunteered to become moderators on the message board.  We should be in good shape now.  It is a thankless job and your assistance is greatly appreciated!