Let's step back and take a look
The market was very impressive across the board on Wednesday. Is
this a trap or will market continue to move higher despite mixed
signals?
Because I am getting these mixed short term signals I think it is time
to step back and take a look at the big picture. I have had this
monkey on my back lately because of missing out on some impressive
rallies. Believe me, I don't like it any more than you. But
when my indicators are telling me to be cautious I have no reason to
doubt them. Sure the market can rally anyway, but when you look at
the big trends, whether higher or lower, you want to be prepared.
Making some money on the shorter term moves is always nice. But it
is tough, and unless you are a day trader, the big money will come when
you are positioned correctly for the big moves.
Below is a 19 year chart of the Dow. You can see that there are
some big moves higher and lower, and years when not much really happens.
There may be gradual moves higher or lower but those gains and losses
pale in comparison to the major moves.
Chart provided courtesy of
www.decisionpoint.com
For several reasons, I am expecting a move similar in
magnitude to the one that started in 1995 to begin sometime this year.
I just haven't gotten the all clear signal yet from the indicators.
In 2000 the S&P 500 was down over 9% and the small caps even more (we
didn't have access to the S fund in 2000.) I managed a modest 4%
gain that year because the red flags were waving. Of course timing
these moves is not always easy and, while I didn't track my returns
prior to 2000, I remember I was overly cautious in 1999 and missed
potential gains. But flirting with the end of that major bull
market was quite nerve racking. My indicators said get the heck
out, but the market, TV announcers, and my plumber all said buy, buy,
buy. And for a few months they were right. Then the floor
fell out from under them.
I managed to keep my combined return above that of the S&P 500 during
2001 and 2002, even though I took some big losses. The indicators
were early again as they tried to tell me a major buying opportunity was
coming. It came in 2003 and I managed to pick up a 39% gain that
year.
Other than the second half of 2004, during the last two years my
indicators have been less than enthusiastic about the market and we've
been stuck in one of those go nowhere periods. My "advice" for the
longer term buy and hold TSP members has been to get most of your
money in stocks, but not all of it. Not just yet. That
account has done better than my short term account because of the recent
market strength.
Short term investors who follow along here have been on the sidelines
waiting. It hasn't been fun but I haven't that buy signal yet, but
it will come. It may take a few weeks or months but I am sure it
will come. And when we get it, the market have likely gone through
a tough time when you won't really want to be a buyer. But that's
when you do buy.
For now I am liking the market action and it could be worth a short term
play if we can get some short term oversold readings again. If
this post-options expiration week (in red below) plays out in typical
fashion, today could be a day we give back some of yesterday's gains.
You can see in the chart below that Wednesday is the strongest day of
post-options expiration week, and Thursday is the weakest. The
holiday may throw things off however. We'll see.
Chart provided courtesy of
www.sentimentrader.com
I am particularly getting interested in the I fund as the
dollar may be needing a temporary rest. I almost pulled the
trigger before yesterday's deadline to get something into the I fund,
but the closer we got to the deadline, and the stronger the market got,
I decided to hold off to avoid risking jumping in on the pullback day.
Looking at the chart, the F fund is getting interesting from a technical
standpoint as bonds are perking up again. I just can't see how
interest rates can move much lower at this point (bonds move in the
opposite direction of their interest rate yields.) I think I will
pass on the F fund for now.
Chart provided courtesy of
www.decisionpoint.com
Still in patience mode but I may get some money into the stock funds on
a short term pullback. Maybe I will get a better feel for
the market if I commit some assets to stocks. I'll wait for the
short term indicators to move back to oversold.
That’s all for today. Currently 100% G fund. Thanks for
reading.
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