Update: With the Dow down about 90 points early, I am starting to small a little fear out there. I am moving another 30% into the C fund before today's deadline and will be 40% G, 60% C effective Tuesday 3/22/05.
A low may be close time-wise, but I believe we may see more damage first.
This is purely speculation of course but I believe things will get ugly in the next week or so, but that will set up a decent buying opportunity. We just haven't seen the fear yet but it won't take much more.
I have shown a couple of indicators of sentiment and put / call ratios that indicate we may be getting close to a buy, but one indicator I watch and post here occasionally is the 10-day moving average of the ARMs index, also called the TRIN. A quick definition taken from www.decisionpoint.com:
"The purpose of the TRIN (also called the ARMS Index after its inventor, Richard Arms) is to express the relationship of volume in advancing issues to volume in declining issues. When the market is rising we want to see more volume going into advancing issues than declining issues. When this doesn't happen, negative divergences occur. The opposite is true in declining markets. A chart of the index will display points where the market is oversold and overbought as well as divergences between the market and the TRIN.
The basic raw calculation is as follows:
Advancing Stocks/Declining Stocks
--------------------------------------------
Advancing Volume/Declining Volume"
Anyway, the zone that I've considered a buy signal is the 1.3 to 1.5 area.
Last year we saw some very low readings and I'm told the change is due
to the decimalization of stock prices as opposed to the old fraction
method. You can now have a $50 stock up as little as .01 on the day and it is
considered to be an up day where in the old days stocks in the $50 range
traded in increments of 1/8 or 1/4 of a point or .125 to .25 cent moves.
They didn't make the very small
fluctuations as they do now.
The indicator is now at .97, way off the buy zone of 1.3 to 1.5 we'd
want to see on a pullback. It is actually closer to a sell signal
believe it or not. A couple of bad days this week could bring it
down closer to the buy zone.
Chart provided courtesy of
www.decisionpoint.com
My guess at the chances of
a significant drop in the next week or so as I have been talking about is
probably about 60%. Better than even money but it still may not
happen. I'm just still in defensive mode. We have all time
high oil and gasoline prices, interest rates creeping up, and a market
that made a new multi-year high just days ago. Something has got
to give. Remember these figures I posted several days ago about
the size of a pullback when the the S&P 500 makes a new high and the
Nasdaq 100 is still at least 5% away from a high? The new high in
the S&P 500 came on March 4th and the high ended up being on March 7th.
|
Date |
NDX lag |
# of days to high |
# of days to low |
Loss to low |
20-day gain after low |
60-day gain after low |
|||
|
SPX |
NDX |
SPX |
NDX |
SPX |
NDX |
||||
|
12/02/86 |
-10% |
0 |
19 |
-4% |
-5% |
13% |
18% |
24% |
35% |
|
10/18/88 |
-8% |
3 |
24 |
-5% |
-7% |
4% |
7% |
11% |
15% |
|
07/29/92 |
-13% |
3 |
18 |
-3% |
-6% |
2% |
8% |
2% |
16% |
|
03/08/93 |
-6% |
2 |
34 |
-5% |
-9% |
3% |
12% |
3% |
8% |
|
11/17/95 |
-5% |
17 |
34 |
2% |
-9% |
6% |
16% |
8% |
16% |
|
02/11/97 |
-6% |
4 |
41 |
-7% |
-9% |
12% |
16% |
25% |
27% |
|
12/05/97 |
-7% |
0 |
13 |
-5% |
-12% |
3% |
8% |
19% |
28% |
|
AVG |
-8% |
4 |
26 |
-4% |
-8% |
6% |
12% |
13% |
21% |
The S&P 500 has pulled back 3% from the high made on March
7th. The average pull back during these situations is 4% which we
are close to (the range was 2% to 7%), but the average number of days to
a low is 26 and it has only been 9 trading days since the recent high.
Shortest period during the other instances was 13 days.
My thinking is that this is a good thing. We may need to be in
protection mode for a bit longer but we also can be on the lookout for a
buying opportunity. I'm thinking I will be moving half or all of
my remaining G fund position into stocks funds sometime this week or
next. I'll send out an email alert when I do.
That's all for today. Currently 70% G, 30% C fund.
Have a good weekend.
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