I go away for a couple of days and the market takes off without me?

It looks as if I should have waited at least one more day before lightening up again.  With only 25% of my account in the stock funds, it isn't fun watching big rallies.  Congratulations to those of you who took a shot and made some nice gains at the end of last week.  But last week's action hasn't done too much to change my current outlook. 

While options expiration week has a stronger than average bias, the overbought readings are still telling me to beware.  A strong rally late last week certainly doesn't change that.  The good news last week is that the S&P 500 made its highest close of the year (Jan 3 opened higher but closed lower).  The question remains, will the market continue to climb a wall of worry or will the choppiness continue as we saw last year at this time?

I marked several points on this chart of the S&P 500 where the index came close to the last high, only to fail and fall back down.  It wasn't until point #5 in November that the consolidation period ended and it broke out to a new high.  If we have started a new consolidation period, the S&P will likely have trouble making and holding a new high.  Another 1% gain would test the high made in late December.


                                Chart provided courtesy of www.decisionpoint.com

A strong high volume breakout over 1220 would make me more bullish but until then I am leaning toward seeing a continued consolidation because of some of the indicators.  The only reason I am keeping that 25% in the C fund is because I am not bearish.  I am more neutral but the closer we get to the higher end of what I perceive as a short term trading range, the more conservative I will get.  If we pullback again and get closer to the 1180 to 1163 area, the more aggressive I will get, but as I've mentioned before, a move below 1163 could put me in the bear category for a longer term.  Right now, I'm neutral with a longer term bullish bias, but a short term cautious outlook.  Confused yet? 

Translation:  The market looks OK.  It may just need a breather.  I don't see another 2000-2002 situation developing as many of the bears are seeing.  Things are very different from what was going on then.  But I won't go into denial if we do make a lower low (fall below 1163 again).  That will be the first sign of trouble. 

Missing rallies is not fun.  It is not as bad as being in the market when it goes down but you still get that little sickening feeling in your gut when you miss potential gains.  Back in the summer and fall I was pounding the table that a big rally was coming.  I was willing to put all my chips in and wait it out even though the indices looked pretty bleak.  We know what happened over the next several months.  That has changed.  I'm in capital preservation mode at the moment.  As important as it is to get aggressive at the right times, it is twice as important to get conservative when you get the warning signs.  So far I only see a yellow flag (as opposed to red).  I don't know at the moment if the next flag will be red or green so I'm laying low, selling the overbought condition and buying the oversold.

That's all for today.  Currently 75% G, 25% C fund.  See you tomorrow.

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