The cards are on the table

There has been quite a contrast here between the last half of 2004 and most of 2005 for TSP Talk.  Most of the readers and members who have joined us in 2005 probably think we will never put money into stocks.  Those who have been with TSP Talk since 2004 know that we can be as aggressive as anybody... when the indicators tell us to be. 

After yesterday's transfer, effective today (Thursday) I am 100% in the S fund.  I weighed the evidence, and decided the higher odds play is to get into stocks for the holiday.  That's what we do here.  We look at all the data and decide what the highest odds play will be.  Usually that is from a longer term perspective, but this late December seasonal strength will make a major influence on the short term.  The odds strongly favor a rally between now and the end of the year.  Actually, the first two trading days in January are also very strong historically but last year was a major exception.  I'll talk more about that next week.

Yesterday morning Santa showed up early bearing gifts for all.  By late afternoon, traders and investors were exchanging and returning most of those gifts as an 95 point Dow gain turned into a 28 point day by the close.  Will they put that cash to work again today?

       

The strength was evident and it gives us a hint that traders are willing to pounce on a rally if it presents itself.  But they also appear nervous as the late profit taking showed.  That's good though.  You need some skepticism to keep a rally going. 

Make no mistake, I still believe stocks are very susceptible to a big push down in the the next few weeks and I am nervous about being in the stock funds now.  But I try not to trade based on my fear or excitement, but rather on the indicators, odds and sentiment.  Once we get past Christmas, I will go back into my shell.  I am still expecting a great buying opportunity in the next several weeks.  But to get there the market needs to take a major break.  It wouldn't surprise me to see a 5 to 10% pullback early in 2006.  Then, when things look their worst, you will see us change gears here and start buying stocks aggressively again.

It's interesting.  Looking at options traders, both the smart money, and the dumb money are very bullish right now.  I like to be on the side of the smart money regardless of what the dumb money is doing.  I wouldn't be surprised at all if the dumb money continues to get more bullish into the new year, and the smart money does an about face if the market continues to rally.  That's when markets turn.

That's all for today.  Currently 100% S fund.  Thanks for reading.