Caution and aggression

The lack of a bounce Monday or early Tuesday set the stage for another round of selling yesterday.  The very short-term indicators are getting oversold so a little bounce isn't out of the question but the penetration of the 1/24 low puts the S&P 500 in a technical short-term downtrend. 

I follow a set of indicators that help me decide what to do with my money.  They don’t tell me exactly what the market is going to do, but they do tell me just how cautious or aggressive I should be with my TSP account.  These indicators are certainly not always accurate.  Sometimes they contradict themselves.  Sometimes the market does just what they indicated, but the timing isn’t always right.  No indicator, investor, or trader is always right (although I do know a trader who claims he hasn’t had a losing trade in 18 months.) 

So unfortunately, these “misses” happen all the time.  If you are going to time the market you have to expect being wrong much of the time.  My thinking however is, when the yellow flags are waving it is better to err on the side of being too cautious; and when we get the green light, lean toward being overly aggressive in stocks.

The market had a great run from late October through November.  By Thanksgiving we started to see some of the short-term yellow lights flashing.  But in actuality, the intermediate term indicators have been saying we need one more push down for several months, even when we bottomed in October. 

After the recent weakness the S&P 500 is just below the late November peak.  It is 3% off the recent January highs and yesterday marked the lowest closing point of the year (although it is still up .52% in 2006.)


                                  Chart provided courtesy of www.decisionpoint.com

So whether this recent market pause is a short-term breather or more of an intermediate term top, I can’t be sure.  I continue to believe that in order for the market to rejuvenate for the next big move higher, it needs to regroup and get those intermediate term indicators back to oversold levels and the sentiment indicators into an overly bearish position.  It still has some work to do on the downside to get to that point.

I am not saying we are seeing another 2000 type market top.  On the contrary - I expect a good year for stocks.  But these big moves higher without at least a little fear driven drop, a little more than what we saw in October, can’t last forever and tend to run out of steam.

Since I have my day job, I can’t watch the market during the day as much as I would like to, so I didn’t get a good feel if the selling yesterday had a little panic in it, or if it was of the slow grind down variety.  Panic selling brings with it at least short term bounces.  Slow grinds can be demoralizing to those in stocks because in can continue for some time.  Volume was higher during yesterday’s selling than on Monday’s lackluster day, but it wasn’t high enough to indicate to me there was any panicking going on.

It is days like yesterday, when all of the stock funds are down more than moderately, that you are happy to be safely in the G fund.  That hasn’t been the case for some time.  Let’s see how long that will last.  As I mentioned, we could get a little relief bounce but I’m not so sure it lasts too long. 

It may be premature, but do you think stockholders getting anxious?  I don't believe we've hit denial yet.  When you are on the sidelines the cycle of emotions are a bit different.




That’s all for today.  Currently 100% G fund.  Thanks for reading.

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.

Once the trial period is over, the regular subscription price will be $19.95/month which will include 4 to 5 weekly newsletters each month.  The newsletter will be in PDF format so you will need an Adobe Reader (Download it free here.)

Still have questions about the TSP Timing Newsletter?  Click here.