The indicators usually give early signals that test your patience.

Just as we saw in late January when the indices were slowing bleeding downward with no sign of relenting, the market is now slowly climbing upward with no signs of relenting.  When you are on the wrong side it feels like an eternity.  You either have to act quickly, or have patience.

From January 10th to January 28th I stayed 100% in the stock funds expecting the pullback to end, as the indicators told told me.  On January 31, I gave up.  Capitulated.  I put 60% of my money in the G fund as I wanted to stop the bleeding.  That was when it started up again.  That is sentiment at its best.  The indicators were right but I couldn't stand the heat waiting.  I quickly fixed my mistake going back to 100% stocks until February 7th when my indicators started to flash me another sign.  This one was a warning.  I moved 50% into the G fund at the time and now I sit with 75% of my money in the G fund waiting for another pullback or oversold condition to present itself.  Once again the indicators flashed a warning and now the rising market is going to test my patience. 

As I mentioned Monday, we are closing in on the December highs.  If we break above that level it will be a nice bullish signal for the intermediate term, but it could be a short term sell signal as we have to watch the volume.  High volume is good and low volume is a weak breakout.  In November's breakout we saw the S&P 500 volume near 2.2 billion shares traded.  We haven't had volume over 2 billion since February 1st. 

One interesting note, the NYSE index has made a higher high.  The S&P 500, Nasdaq and Dow have not made a new high although the Dow is getting close.  The small caps are well off the highs confirming that the flattening yield curve in bonds is making the larger stocks a favorite with investors.

How about the I fund and the dollar?  I like to play the I fund more so when the dollar is declining.  But even when it is going down, the EAFE (the index the I fund tracks) has to do well to warrant a move to the I fund.  Recently we have seen the I fund do well because of a combination of both.  If the U.S. market falls, the EAFE probably won't take off but may hang in there if the dollar falls.  So if we are to play any stocks, the I fund may be the place to be for a little while.  But since I think we are near a pullback, I'm not inclined to do that just yet.  The dollar could give us a snap back rally.  Combine that with a possible falling EAFE (assuming it follows the U.S. stocks) and you could compound your losses. 


                                Chart provided courtesy of www.decisionpoint.com

Just a quick description of what I'm outlining here;  The PMO (bottom indicator), which I talked about a week or so ago, is a momentum indicator.  I noticed with the chart of the dollar, the crossover of the PMO (blue wavy line) above or below the 10-day EMA (green wavy line) can give a temporary opposite signal.  When the blue line crosses above the green, normally a buy signal, we sometimes see a temporary sell off and vice versa.  Here we are getting close to a sell signal (blue almost below green) so we could see a little rally before more weakness.  Although it does look as if the dollar wants to test the December lows below 81 eventually.

OK, that's a lot of info, and a lot of speculative technical mumbo jumbo.  What I'm waiting for is more confirmation of a direction of both the dollar and U.S. stocks.  Right now I'm 75% in the G fund because of this uncertainty which is causing me to stay more cautious for now.  We made some nice double digit gains in the last half of 2004.  I've already given back 1.7% of that.  I'd rather preserve my capital until I see something more concrete to go on.
 
That's all for today.  Currently 75% G, 25% C fund.  See you tomorrow.

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