I'm missing the boat, but is it going to pull back into the harbor?

In Friday's comments I mentioned how impressive Thursday's rally was.  Well Friday's was even better.  Not great for those of us in the G fund.  Since there is little we can do about last week we have to focus on what is up coming.  Resistance is upon us.  Will the market pullback or bust through?  We had a similar pattern start last summer that ended up being one last trap before the rally really took off.  See if you can follow this mess I've drawn...


                          Chart provided courtesy of www.decisionpoint.com

Throughout 2004 we had several rallies hit resistance and turn down, even some failed breakouts like the box I've drawn from late June to early October.  What is going on in that box is similar to what we are seeing in the box at the top right.

- A deep decline recovers almost completely before reversing back to another steep, less severe drop.

- That steep drop is quick but within a few days it also recovers all of those losses.

- In the first box there was one more demoralizing sell off before the big rally began which eventually broke out to new highs.  Are we at that point again?

Now I don't know if a big rally is around the corner, but I'm not sure if sentiment has been repaired enough (not enough bearishness) to sustain a lasting breakout.

So while I hated missing last week's three day big rally, I don't see a reason yet to get back into stocks.  As I mentioned last week, that odd-lot short sales stat may have been the green light but that info wasn't available to me until Wednesday night and I thought by the time I was able to put in a transfer Thursday morning, I would have missed the rally.  It turns out being invested Friday would have worked out very well.  Oh, well.

Take a look at the turnaround in sentiment by the "smart" money (not the AAII survey of "dumb" money I normally post).  These folks were very bearish following last Friday, 2/18, just prior to last Tuesday's sell off.  This past Friday, 2/25, they changed their tune dramatically.  60% bearish to 14%...



                          Chart provided courtesy of www.decisionpoint.com

So again I'm getting mixed signals from a plethora of indicators.  I could show you several charts telling me why it is time to be invested, and many others why it is time to get out.  With this uncertainty, I don't think it is wise to get too aggressive.  I missed that opportunity last week.  I'd rather see how the indices react to approaching the resistance areas.  I'd also rather see a breakout, then buy the dip, then chase now.  The market does climb a wall of worry and this may be what we are seeing.  If that's the case I may miss the boat for a longer period of time than I'd like.  But I still think it is best to wait for another oversold condition before getting in.  If you do decide to get in, use that I fund.  The dollar is rolling over again.

That's all for today.  Currently 100% G fund.  See you tomorrow.

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