Friday's sell off put the shorter term indicators back in oversold territory. Last week that only lasted a day I believe. With the S&P 500 sitting directly on the recent upward trend line, it wouldn't be a shock to see a little rally here. This is options expiration week which is typically above average. But is the market well enough to support a rally? What I'd really like to see is a big old sell off below support, just enough to set off stop losses and put some fear back into the market. Then I'd be glad to get back in.
I've noticed a little pattern with the PMO indicator (wavy lines on the middle chart below). When the PMO (blue wave) goes above the 10 day moving average (green wave) it is supposed to be sort of a buy signal. Likewise when the blue goes below the green, it is a sell signal. When the initial crossover, either above or below, is temporary or a fake out, the second crossing gives a much better signal.
Chart provided courtesy of www.decisionpoint.com
At points 1 & 2, and 5 & 6, the 2nd and 6th points were excellent sell signals. At point #4 we had a great buy signal after the first crossover at point #3 was a fake. You can see where I am going with this as point #8 is about to give a second sell signal.
So we should have a little tug-of-war this week with trend line support, short term oversold indications and options expiration week suggesting a positive bias, and the PMO sell signal, sentiment and the end of the strong six month seasonality period giving us a negative twist.
The I fund seems to have a lot of people's attention and for good reason; it continues to do remarkably well. One thing I want to point out again, as I did in December I believe, is the dollar is approaching the lows near 80 that has acted as support for nearly 20 years. It is currently at 81.47 so if this low holds again, the downside is obviously limited.
Chart provided courtesy of www.decisionpoint.com
If the dollar holds again and starts to rise off of 80, the I fund will have to make it on its own with out the help of a falling dollar. Even a move to 90 will cause the I fund to act as if it is running in peanut butter: It might move up, but it won't be easy.
I am currently 100% G fund and I am OK with that. I am looking for a fear driven sell off at this point to get back in. It may come this week, next or never. It could just be a slow grind down without fear. I will email those of you on the email alert list if I make a move. Depending on what happens, I could move in slowly, or all at once. We'll have to see.
I am not excited about the prospect of missing another trading range rally if we get one but as I've said before, I don't play the short term swings very well. I am still being very cautious.
That's all for today. Currently 100% G fund. See you tomorrow.
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