Frog in a blender or quick and painful?

We are seeing a bit of a change in character in the market in that investors seem to be selling strength rather than jumping in on weakness.  It is too early to be sure but the S&P 500 did close below the 50-day moving average for the first time in almost four weeks indicating an unwillingness to "buy the dip."

The lack of a late bounce could have been the result of investors limiting risk in front of the important jobs report due out this morning.  This report should have a big impact on the market one way or the other.  The estimates are for 210,000 new jobs being added in February.  Anything much higher and interest rate hike fears could spook the stock market.  Anything too low would tell us the economy is growing slower than expected.  The market doesn't like surprises so the closer that number comes in to 210,000, the better off the stock market will likely fare.

Some people may be looking forward to a report that sends the market reeling downward as they are waiting for a buying opportunity.  I'm in that camp but so far it has been a slow move down.  I have been hearing that many people are getting too bearish that that should keep the market afloat.  But in this last move down, the complacency is starting to show itself in the latest sentiment indicators as the AAII Investor Sentiment Survey bearish number came in at 31%.  Still well above the 40% to 50%  that typically come near solid bottoms, hence the "frog in the blender" analogy.  Investors could slowly boil before feeling any pain.


                                        Chart provided courtesy of www.decisionpoint.com

You can that this indicator does give a decent buy signal when the bearish percentage is 40% or higher but also when the ratio of bullish percentage to bearish is less than 1 to 1.  The past two pullbacks found a bottom when the bearish percentage did not yet hit 40% but those rallies were short lived compared to what a 45% to 50% number brought with it.  The ratio never made it below 1 to 1 in the two pullbacks this year.  That is what I have been waiting for, more selling, more nervousness, more fear.  Will that come in the near future?  I don't know, but the sooner it does, the sooner you will see me back heavily in the stock funds.  I know - it's been a while but that day will come eventually.

According to Fed funds futures, there is a 100% chance that the Fed will raise rates again on March 28th.  There is also an 82% chance of an increase in the May meeting.  This is after we were all thinking the Fed should have stopped last fall.  This is obviously a concern to investors and unless the first quarter earnings reports, which should start coming out in early April, are blockbusters, the market will be running out of catalysts. 

But again, it's all good.  The S&P 500 is basically sitting where it was at the end of the second trading day in January and the lack of a real pullback is what is holding it back in my opinion.  A healthy market needs to breathe in and out.  It hasn't had a decent exhale (a drop of at least 10%) in three years.  Welcome it when it gets here.

Administrative note:  The new "non-PayPal" credit card processing is now in a testing phase so it shouldn't be too much longer before those of you who wanted to subscribe to the TSP Timing Newsletter but didn't want to open a PayPal account, will be able to subscribe.  Again I apologize for the delay.

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

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