I apologize.  It wasn't until I got home from work Thursday that I realized (after several emails from observant readers) that I did not upload the February 17th market comments.  If you get the email alerts or read the message board you saw that I moved to 100% G fund effective today (Friday).  That was my basic message in Thursday's comments which I will leave below.

Thursday's steep drop, which I would have preferred to have seen Friday, may actually set up a little bounce today.  If that happens I would expect more selling next week as we closed right at some recent weak support on the S&P 500, but I don't believe will hold for long.  If we drop again today (Friday) I expect the next level of support to be in the mid-1180's as I attempted to convey Thursday. 

The new AAII Investor Sentiment Survey came out yesterday and the percentage of those polled who said they were bullish was 36%.  The percentage of bears was 30%.  That actually puts us in better shape than I thought.  A 1 to 1 ratio is bullish for the market.  A 2 to 1 ratio of bulls to bears is bearish (The opposite of what might seem logical).  A lack of bears is bearish for the market, and too many bears is bullish.  I know, it's confusing.  As it gets closer to 1 to 1 it makes me believe this pullback might be on the tame side.  It depends how they react to this pullback.

I won't bore you too much more today since you may not have had a chance to read yesterday's comments (below).  Have a great weekend.  Currently 100% G fund. 


2/17/05
The bulls can't get it done again and may be running out of steam.

The S&P 500 has been up 13 of the last 17 trading days.  That is a nice run but can it continue?  The bulls have not been able to muster enough strength yet to take out the high made in December.  With a typically stronger than average options week more than half over, time may be running out for a high volume breakout.  As you can see below, Friday of options expiration week (blue) is not normally a great day, and the week after options expiration week (red bars) is also weaker than a typical week.

                               Chart provided courtesy of www.sentimentrader.com

Assuming today is not that high volume breakout day I am going to prepare for a pullback.  I know I'm already 75% in the G fund but this is one of the few times that I am willing to take it all off of the table without seeing a lower low first.  I am expecting a pullback to one of the three trendlines I have marked on the chart below.  This may be premature, but the first support area would be in the mid-1180's.  I will worry more about it if we actually get there, but the indicators will give us hints if the pullback will be deeper than that and test points 2 and 3. 


                                Chart provided courtesy of www.decisionpoint.com

The market rarely acts on queue so I don't expect anything I say to turn out exactly as I say it.  I haven't seen the figures yet but the new AAII Investment Sentiment Survey comes out this morning.  I'm getting a sense that people are getting more bearish which is usually good for the market.  Maybe I'm wrong or maybe that sense is coming from reading what the "smart money" is thinking.  We want to listen to the "smart money" and go against the herd or "dumb money".

I saw a stat showing the OEX options traders (smart money) are now buying puts (options speculating that the market will go down) at a 1.75 to 1 ratio to calls (options speculating that the market will go up), which is very high.  The total equity options ratio (dumb money)  is nowhere near as bearish.  This is more ammunition that a pullback is nearing.

That's all for today.  Currently 75% G, 25% C fund but I will make an interfund transfer this morning to move to a 100% G fund allocation for a while.  It will be effective Friday morning.  See you tomorrow.