Market Comments
 
January 18, 2005
                                               
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Today's Comments (Short Term Outlook)
Something's got to give.

After a steep sell off to start the year, the market hasn't done much to help the bulls' case.  For nearly two weeks the S&P 500 has been in a consolidating downward slope.  So which way will it break, up or down?  If we look at past occurrences over the last 13 months where the market had a steep drop, then consolidated for a few days or weeks, we see slightly differing results. 

Point #1 on the chart below is most similar to what we are seeing today.  Not only did it take place in January (2004) but the sell off followed a sharp rise in the market.  There was a sharp drop followed by a week of little movement before a new rally started. 

At point #2 the drop was followed by a short consolidation but a second sell off occurred  before a new rally started. 

Points 3 and 4 were both sell offs which followed declines in the market so while the bottoming formation looks similar, I believe it was a different situation. 


                              Chart provided courtesy of www.decisionpoint.com

If I had to make a guess, which is all I can do at this point, I would say the market may rally but it will stay in a trading range making the rally a selling opportunity.  After nearly ten weeks of basically straight up movement, the indices have been resting for a couple of weeks.  There is likely to be a battle between the bulls and bears to determine the next trend.  That would mean we could see a tug-of-war for a while. 

Oil has been creeping up again and may be partly responsible for the nervousness in the stock market.  Looking at the chart of oil, I am seeing what looks like a head & shoulders pattern forming.  Head & shoulders is a pattern that results where a stock price reaches a peak and declines; rises above its former peak and again declines; and rises a third time but not to the second peak, and then again declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.  In this case it means oil prices may go down AFTER it hits near 50 again, and then possibly break below the neckline currently near 42.50. 


                                Chart provided courtesy of www.decisionpoint.com

If it breaks much above 50, all bets are off.

Even though I am fully invested in stocks right now, I am in a wait and see mode.  I have no strong convictions either way as many of my indicators are in neutral territory.  I am leaning toward seeing a rally that will suck in some of rising number of bears back to being bullish.  Then I will lighten up.  As I mentioned last week (see comments below) that 40% bearish sentiment figure is usually a good sign that we will see a rally in the near future.

That's all for today.  Currently 50% C, 25% S, 25% I fund.   See you tomorrow.

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Prior Day's Market Comments (see archives on left for earlier comments)

That was ugly.

I'm guessing, and hoping, that those of you who follow the transactions missed that last minute cancellation I did of my transfer.  If you did, you missed half of yesterday's losses by being 50% in the G fund.  Since I did cancel it, I took the full brunt of the losses.  It's interesting that the TSP.gov hasn't updated the fund share prices on their website as I write this Thursday night.  Just as well.  I'm not sure I want to see it.

So what now?  The market is obviously struggling and the deeper the losses, the more likely the bull market may be in trouble.  That doesn't mean we won't get a rally in the short term.  The new AAII Sentiment Survey came out this morning and we are seeing bearish numbers only seen a few times a year.  This tells me we are likely to see a rally some time in the next week.  But that might be setting up a good selling point as it looks as if we are going back into a consolidation period, or trading range. 

Here is the survey...




                              Chart provided courtesy of www.decisionpoint.com

The bearish percentage (red bar chart) hit 40% and the bullish percentage (green) is 34%.  If you follow the "X"s and arrows I marked of other points where the numbers were this bearish you will see that these extreme bearish numbers usually lead to a rally.  In the meantime there is a possibility that we will come down to that old 1165 breakout area on the S&P 500, which is also that 38.2% retracement.  Hopefully it will happen first thing in the morning and will be followed by another reversal.  I just want to get it over with.  But it could take a few days.  Not enough time to react so I'm staying put for now.