This is the tough part about market timing. I was all set to show you all these indicators that gave some clues of pending weakness but now it would just be Monday morning quarterbacking. The very strong seasonality data of Tuesday kept me fully invested an extra day or two. Now that I have lightened up on stocks, we are likely to see some sort of a rally which will compound the problem. That is called a whipsaw (buying stocks just before prices fall and selling stocks just before prices rise in a volatile market) and can be quite frustrating. So what now?
I'm looking at the charts and as I said, we could very well get a some kind of rally. The bull market is still strongly intact for now so it could either shake off this pullback, or we can continue to flounder. I will watch the psychological indicators over the next few days and see if I can't come up with a better plan. For now it seems like a lot of people are expecting a bounce back, including myself and that is when I have to fight my own instincts and think like a contrarian. Should we sell further strength or buy this weakness? The answer will come when I know how the herd (majority) is responding. I will go the other way.
I haven't shown you this chart in a while since we were really riding the coattails of the election and holiday the past several months. But in the last two days the overbought / oversold indicator has gone from overbought to oversold in flash. Nothing extreme yet but it is at the lowest point since August.
Charts provided courtesy of www.decisionpoint.com
A short term daytrader would probably try to take advantage of a quick rally but since our hands are tied by the 12 noon ET deadline and the one day delay, I will stay put and see how things play out. If I wake up Wednesday morning (I am writing this Tuesday night) and the market appears to be down big again, I may have to bite the bullet and get back in. If it is up or flat to only down slightly, I won't do anything. Sometimes these drops give you a quick oversold rally but then continue the weakness in a day or two. I'm still in defensive mode and will wait it out until I see something.
That's all for today. Currently 40% G, 30% C, 15% S and 15% I fund. See you tomorrow.
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Prior Day's Market Comments (see archives on left for earlier comments)
Not a great start to 2005. We need a reprieve today.
I spent a lot of time this past weekend updating sections of the website
including the
longer term comments and the daily
comments, and I forgot to send out the reminder email alert. Even
though I update the comments every weekday, I usually send out that
reminder on Monday mornings so you can start the week out with something
to think about. I didn't want anyone to miss the year's first
comments so if you get a chance, try to check out the
January
3, 2005 comments.
If you read those comments you know that I was speculating that we will
be seeing a pullback but I really wasn't expecting it until after this
week, or at least until after the first three trading days this month.
With a very weak day behind us, particularly in the small cap stocks of
the S fund, I wouldn't be surprised to see a bounce today. I don't
know if it will hold but the 2nd trading day in January is historically
very strong. The third trading day is also above average but
nothing like the 2nd.
Last week I had been saying that the converging trend lines (in red,
called a rising wedge) will have to give one way or the another.
Late Friday that wedge brokedown slightly to the downside. That
was a hint of things to come but I was still hoping that the strength of
the early January trend would keep the rally going. Now I think we
need to prepare for the possibility of more weakness. I would like
to take advantage of a possible strong day Tuesday to lighten up some.
Charts provided courtesy of
www.decisionpoint.com
I am currently
50% S, 50% I fund but I will initiate an interfund transfer this morning
moving to 40% G fund, 30% C, and 15% each in the S and I funds.
This new allocation takes effect Wednesday.
Don't forget to check out yesterday's comments below if you missed them. See you tomorrow.
Keep track of your 2005 returns. Downloading the 2005 returns calculator. Click here...
www.tsptalk.com/utilities.html.
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