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Market Comments
January 3, 2005 |
| Today's Comments (Short Term Outlook) |
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Happy New Year! With 2004 behind us, the first full year for TSP Talk, we had the chance to see a little bit of everything. We saw an overbought rally turn into a long consolidation period, with undertones of a bear market. We saw an oversold market that looked as if it was going to collapse turn back into a strong rally. We saw a trending market, an oscillating market (one going up and down). We saw how strong seasonality data can be, and how wrong it can be (July). It was a very good learning experience for most of us. None of that is worth anything unless we use what we've learned. But the market is not that easy. It doesn't always do the same thing, in the same way, at the same time. Think about what you may have learned and think about how you can make use of it. The main thing that was reiterated to me in 2004 was that the market doesn't always do what my indicators say it is going to do, at the time it says it is going to do it. I have to trust my indicators. That is important. But I have to realize that the timing may not always be perfect and I may have to eat crow for a while, go away from my position, and go more with what the market is saying and not just what my indicators tell me. The two examples from 2004 were in July and January. In July, the market had just started to perk up and my indicators, both technical and seasonal data, told me the market was ready to break out of its multi-month consolidation. I got fully invested and took a big loss over the following six weeks before we finally saw the upward explosion start in mid-August. In early January 2004, the indicators were telling me the market needed a rest. It wasn't for another 3 weeks that we saw the evidence of that but I had already pulled out and missed a nice month of gains. It actually took until early March before the market finally topped out. My indicators were very correct both times, but each instance had me in or out a few weeks too early. I believe my 10.5% gain in 2004 could have easily been closer to 15 or 20% if I had been more patient. Mental note. January is typically a strong month. There is a saying: As goes January, so goes the year. Meaning, if January is a good month, 2005 should be a good year. If January is weak, 2005 should be a weak year. It goes even further than that. If the first week in January is strong, January is usually strong, hence a strong year for the market, and vice versa. We've come a long way in a short period of time and right now my indicators tell me the market needs a break. I was tempted many times to get out of the market in December but I continued to play those stock funds because of the market's historical strength during the holiday season. After the second trading day in January (Tuesday) the very strong seasonality data will be behind us and the market will have to go up on its own merits, if it can. Because of this I will remain in my 50% S, 50% I fund for another day or two. But if the market continues to rally in the first two or three days, I will lighten up some and put some money in the G fund for safety. I won't go 100% G fund just yet. But that is a possibility down the road. I have updated the longer term comments for those of you who take a little longer term approach to your investing. Although I don't buy and hold for the long term, I do base my shorter term positions on how I feel the next six to twelve months will play out. For instance I never went below 50 to 70% stocks during the last half of 2004 because my indicators said the market was looking very strong. That helped me out a few times. Now things have changed and that is not necessarily the case anymore. So I recommend giving it a look. I don't want to overdose you today so I will leave the graphs and charts to explain why I believe the market is ready to take a break for tomorrow. Currently 50% S, 50% I fund. See you tomorrow. Keep track of your 2005 returns. Downloading the 2005 returns calculator. Click here... www.tsptalk.com/utilities.html. Got questions? Visit our message board for answers.
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