There is a technical term that some traders use to describe their sentiment on a day like we had Wednesday when they are not invested in stocks. Crap! You may not find that one in the Yahoo Financial Glossary. It's a well guarded secret. As you may have seen yesterday, I went 50% C, 50% I fund effective today. Is this a trap?
The market perked up early again. I was a bit surprised that the selling from late Tuesday had not rolled over into Wednesday morning. As time passed by and the sellers didn't step up, I thought that maybe we had the worst behind us. What I didn't want to see though was a huge (over 1%) up day by the close. Not only did I miss the rally but it's possible there could be some profit taking today. The worst of both worlds.
I think the best thing to see today is either a small gain or a small loss as the bulls fight off the bears in a tough fight. That would be OK. The worse case scenario is if we didn't see the bottom and we give back the entire 1.3% plus some. Another big gain may be a bit scary also. One thing we don't want to see is an overbought condition too quickly. That would be bearish for the intermediate term. The other good news yesterday was that the S&P 500 held 1163 so we have not seen a lower low.
So why the I fund? Two reasons. The dollar was down early yesterday even though it bounced back up by the end of the day. The main reason was for a shot at a short term shadow rally. Sometimes when the U.S. indices have a big day, the EAFE index has a big day the following day because the Asian, Australian and some of the European markets did not have a chance to react to our big day. Depending on a couple of things, we may be rewarded in the I fund today for yesterday's U.S. gains. We also need the dollar to cooperate by not rallying.
Chart provided courtesy of www.decisionpoint.com
Oil dropped early Wednesday and that was a big help early. What was amazing is that it rallied late (oil) but stocks held their gains. It (oil) seems to be trying to come off those highs. If it continues to fall the stock market market should have an easier time rallying. If it heads back up, stocks will stay under pressure.
Are we out of the water? I don't know. We may get a decent rally but I still think we need to be careful if the indicators get overbought too quickly or if investors get a little too comfortable buying here. The market tends to climb the proverbial wall of worry and I think it will do so only as long as we are worried. I'm still worried. You?
That's all for today. Currently 50% C, 50% I fund. See you tomorrow.
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