Today's Comments (Short Term Outlook)                             Printer friendly

Bulls surprise us before holiday It has been almost automatic to see selling before the weekend during this bear market.  The fear of the release of news from the financial and housing sectors put investors in protection mode, taking profits.  Thursday we were looking at a long three day weekend and instead of following through on Wednesday's big losses, the market surprised everyone and rallied strongly all day - and volume was not bad at all.  Being that it was pre-holiday trading, and also an options expiration day, there is concern that the rally may not be "legitimate."  It is very important for the market to do a little following through to the upside this week, to give the bulls some hope that we could be seeing at least an intermediate-term bottom forming.  There is a lot of money on the sidelines and a lot of bears short the market, which both provide good ammunition for a rally.  If the bears can come in early this week and take the averages right back down, it could be demoralizing.  That may be what is needed to washout the remaining bulls, but we may be past that already.  Fear has been in the air for a few weeks now. The S&P 500 has tested the January lows and managed to close above it.  The line in the sand was drawn and the index has passed the test a couple of times now.  If it can get a move above the 50-day moving average, and then above the prior highs, it is a very good sign of things to come.  A double bottom is not official until the chart makes a higher high.                                  Chart provided courtesy of www.decisionpoint.com The current chart is looking very similar to the 1998 chart; a year that saw its share of financial difficulties, including the Russian financial crisis.  After a low in early September of '98, the S&P tested that low in October, penetrated below it, but closed above it.  A small rallied ensued at that point, giving investors a similar situation and decision that we face today.  Notice the action of the PMO indicator in both charts.  So what happened in '98 - back down, or a double bottom?                                                  Chart provided courtesy of www.decisionpoint.com                                 Chart provided courtesy of www.decisionpoint.com I wish I could tell you it was going to be that easy - it probably will not be.  This bottom seems like such a no-brainer that it is almost too perfect and I'm waiting for the other shoe to drop.  But it's always like that at the bottom; nerves, uneasiness, fear, etc.  I think the odds of this being a good buying opportunity are high, but I am almost expecting the worst while I am preparing for the best. Many of the indicators are lined up positively, but not all of them.  They never are, however.  Sometimes you just have to take your shot.  I'm not saying we are out of the bear market, but the S&P 500 has made a 20% correction, successfully tested the low (so far), and with the virtual collapse of a major financial institution (Bear Stearns), we have had enough fear for at least a temporary bottom and a potential 10% to 15% move higher over the next several weeks / months.  A 10% rally off of the bottom would put the S&P 500 near 1386, right near the the prior highs.  If we can get that far, we'll certainly have to reevaluate the situation. If you are within a handful of years of retirement, or already retired, I would not want to be a buyer until the charts confirm the bottom (make a higher high).  Anticipating a bottom, rather than being reactionary, is for speculators with time on their side.  You should probably be more conservative and wait. If the market falls below the prior lows, all bets are off for me and I will reevaluate.  But right now is one of those decision times for the market, and for all of us individually as well.  What's your plan?      That's all for today.  We'll see you back here tomorrow. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us.