Are we finally getting a pause or just another tease?

In the last several months every time we have seen a day like yesterday, a very negative day with over 1000 more stocks on the NYSE being down than up (there were actually 1354 more down than up yesterday) it was just a temporary pause and it would have paid off to be a buyer.  Is this another one of those times or are we seeing a change in the character of the market?

For us short term bears who are waiting for a better opportunity to get into stocks, it has been quite frustrating but according to my indicators, eventually it will pay off.  I have missed many short term buying opportunities but one of these times the "buy the dip" traders are going to get burned. 

I have had some very good years (+39% in 2003) and some very bad years (-16% in 2002) but over the past six years the biggest mistakes I have made were buying back into weak markets too early.  My most satisfying year was in 2000 when I made 4.5% when the S&P 500 was down 10%.  Unfortunately, after the super strong bull market of the late 90's, we became programmed to buy weakness and I ended up losing 14% in 2001, and then 16% in 2002.  Sounds terrible and it was, but the S&P 500 was down 12% 2001 and 22% in 2002. 

When the green lights turn on, and they always do, it will be a time to get aggressive.  But for several weeks / months I have not been given the long term green light.  There were some short term buying opportunities as we saw in late October, but the intermediate term has kept me playing defensive.  It may not have seemed like a brilliant move, but over the long term avoiding big losses can pay off. 

I am getting ahead of myself.  One bad day does not a bear market make.  I just wanted to point out why it has been important to me to stay defensive until the indicators tell me otherwise.  It may not work out in the short term, but it should later.  Having your account intact when the market does turn up after a large loss is a very nice feeling. 

And speaking of cash, according to sentimentrader.com:

"...cash levels dropped again in December.  Cash levels have a positive correlation to short-term interest rates (when rates on "risk-free" cash balances are high, then fund managers have more of an incentive to hold cash), but last month the yield on 3-month T-Bills rose from 3.86% to 3.99%. 

With an increase in interest rates, we should have seen an increase in cash balances, but instead the level of liquid assets held at equity funds dropped from 4.1% to 3.9%.  In addition, total assets held by US equity funds totaled $4.9 trillion in December, a new record high.  That's surprising when we compare it against the performance of the S&P 500 or Nasdaq Composite, but I suppose not so much when we include small-cap stocks."  - Jason Goepfert

               
                            Chart provided courtesy of www.sentimentrader.com

 
Remember the chart below?  When the Dow lost 200 points back on January 20th, we were saying that the market tends to be higher 10 days later but that another move down is typical afterward.  (See January 23rd comments.)  So far it is playing out that way so it will be no surprise if we penetrate the January 20th low in the coming days.
 
                                  Chart provided courtesy of www.decisionpoint.com

I hate to make short term predictions like that because they rarely seem to pan out exactly the way I describe them, but you should be open to the idea that this is a good possibility.  It's time to play a little defense.

Yes, there is a stock market / Super Bowl connection.  The theory, invented by the late New York Times sportswriter Leonard Koppett, says if the NFC team, or an American Football Conference (AFC) squad that originally was an NFC member, wins the game, the S&P 500 will rise for the year. Conversely, if the AFC team wins, the market will go down.

This theory has been right 29 out of 39 times, a 74.4% success rate.

This year the Super Bowl Theory is a lock because the Steelers are an original NFC team and the Seahawks now belong to the NFC.


Administrative note: The free trial offer for the TSP Timing Newsletter will be coming to an end Sunday evening.  If you already signed up for the 14 day free trial you are fine.  You will get your free issues.  If you haven't you may want to do so before the weekend is over.  On Monday we will only be offering samples of older issues to new inquiring members. 

Thanks so much for all of your interest in RevShark's newsletter.  We have had some very positive feedback and a good response to the free trial. 

Starting next week I hope to have a more standard credit card and e-check payment option for non-PayPal members.  I will be working on the member's area so it is possible there could be some down time. 

That’s all for today.  Currently 100% G fund.  Thanks for reading.  Have a great weekend and enjoy the game.
 

RevShark's TSP Timing Newsletter is now available.  You can go to www.tspalk.com/members to sign up for the free trial.  TSP Timing is a weekly newsletter giving subscribers a target allocation determined by professional hedge fund manager James 'RevShark' DePorre.   Subscribers will navigate the financial seas along side the Rev while he manages millions of dollars for private investors.  Each week he will highlight TSP funds and a target allocation he believes will provide the best investment potential.  The newsletters will go over charts of each fund with a technical breakdown of each by RevShark.  The subscription now includes a midweek updates as needed.

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