Well, that was nice. So what next?
A great day across the board for the indices on Wednesday. The sellers took the day off but I was not impressed with the volume (number of shares traded) and I'm sure the bears are salivating waiting for any sign of weakness. If it was truly the turn around, we should have seen more participation. I think the capitulation sell off is still lurking.
I certainly could be wrong but I believe we are not out of the woods yet. I am pretty satisfied with the market's 200 point rally the past two days. I'm looking to get out before that last sell off but will it come today, tomorrow, next week...? It's tough to be on the sidelines when the market is going up and that is just what you would risk if you got out now. But being in the market when it is going out is a lot worse. Of course I'm talking about the short term approach. If you are in it for the long term and are not making many moves, stomaching volatile swings is part of the game. You suck it up knowing we are in a bull market and at year's end, you will be happy with your increased balance. But for us looking at the short term, missing a 2-5% sell off is what rocks our boat. The put/call ratio chart I showed yesterday, displayed again today at the bottom of the page, shows there is a fair possibility of getting one more push down.
I don't want to sound too bearish, because I am bullish for the long term, but the indices took a hit technically and this dead cat bounce hasn't proven anything yet. A move to 1160 on the S&P 500 would be a green light but that's almost 40 point away. I don't want to miss that move, but until we get there, this is still considered the consolidation period. During this type of market action you buy low and sell high.
The question remains, get out for Friday or for Monday? Here's another interesting chart from www.sentimentrader.com that helped me make that decision.
Chart courtesy of www.sentimentrader.com
What this says is that Friday is the worst day of options expiration week (blue) while Thursday does pretty well. The week after options expiration week (in red) is typically bad. I'm going to initiate a transfer this morning, getting into the G fund for Friday. I'm hoping we get can get one more nice day today.
That's all for now. Currently 100% S fund but initiating a transfer today for a 100% G allocation for Friday. See you tomorrow.
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Highlights from Wednesday's Comments (see archives on left for full
article):
Today I am 100% in the S fund. I'm going with my indicators and with the historic trend that options expiration week is typically good. As the sentiment indicators start to show more and more pessimism, I believe we are very close to a bottom but we may get one more push down before a new rally can begin. Take a look at this put/call ratio chart (number of options bought betting the market goes down (puts) divided by the number option bought betting the market goes up (calls)). It is showing extreme levels of pessimism that we see near market bottoms. But if you look at the last few times it hit these low levels, you can see the market had a small rally, before it gave way to one more wave of selling. Only in late 2001 did it go straight up. I think we are in that small rally zone this week.
Chart courtesy of www.sentimentrader.com
Add to that the stats I mentioned the other day about the week following options expiration week being typically weak. A weak week, if you will. It would be great if all of these indicators, trends and charts always painted a perfect picture but of course it's never that easy. Never the less, this potential scenario is good enough reason for me to be on the sidelines (G fund) for next Monday. As of today, I plan to stay in the S fund.