Today's Comments (Short Term Outlook)                             Printer friendly

Expect the worst in a bear market Stocks ended modestly lower yesterday on light volume as investors and traders anticipate what the rest of this busy week has in store for us.  Today we get the PPI (Producer Price Index) report, and an important earnings report from Intel after the close.  Tomorrow we'll get the CPI (Consumer Price Index) and earnings from some big names including IBM, ebay, Coca-Cola, and Wells Fargo.  Wednesday also brings us the Fed Beige Book and Housing Starts, with the Philly Fed Index on Thursday. The fact that we are in a bear market, and the indices are rolling over in front of the data, could be an indication that either the data will be bad and the market has anticipated it, or that investors are simply not in the mood to buy in front of the data.  That kind of anticipation can sometimes lead to a "buy the news reaction" even if the bad news is already priced in.                                      Chart provided courtesy of www.decisionpoint.com Of course the data could surprise us and be positive, but as the title of this commentary says, expect the worst in a bear market.  There's no reason to be a hero here in my opinion.  There will be plenty of opportunities to buy once the market turns this trend around. We've looked at the sentiment surveys and while the herd is overly bearish (which can be bullish) the smart money was also quite bearish for the short-term (which is bearish).  I decided to look at the data that shows us what the herd is doing rather than what they are saying in surveys.  The Rydex Cash Flow Ratio shows us the ratio of assets in money markets plus assets in bearish funds, divided by the assets in bullish funds.  The larger the number (lower on the chart) the more bearish the herd is, according to where their money is currently allocated.  The current 0.98 to 1 ratio is actually much higher than you'd expect to see if we are near a market bottom.                                        Chart provided courtesy of www.decisionpoint.com Going back a few years, you are more likely to see investors being more defensive this deep into a correction / bear market.  Significant bottoms have seen readings between 1.10 and 1.20 to 1 before a low is formed.  Perhaps the 1.05 to 1 ratio we saw in March was the worst we'll get, but that would be surprising to me considering how bad the news has been.  You've herd the adage that bull markets climb the wall of worry?  Well right now the bear market is bleeding down the hill of hope as many keep calling for a bottom.  We may need to see another push down to get the bearishness down to a buyable level.  This is an options expiration week and there is a tendency to get one or two big moves both up and down, with Tuesday, Wednesday and Thursday being the likely days.  The fact that it is such a busy week data-wise makes believe we will see some wild action in the next few days.  Hold on!  That's all for today.  Thanks for reading.  See you 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. ------------------------------------------------------------------------------------------------------------------- ** By joining our email alert list you will receive an email each time we initiate a transfer or change our market outlook.  You may also receive an email each Monday morning reminding you that our comments are updated daily.  We will always send out these emails prior to making the transfer myself but we can not guarantee you will receive it in time to make a transfer yourself.  By joining you understand that this is what the owners of TSP Talk are doing in their own account and if you decide to follow our transfers in your own account, you do so at your own risk.  There is always a possibility for a loss in your account.  These transfers could come very often and you may have to act quickly to make the deadline.  Please consider your investment strategy before taking any advice or making any transactions.  By reading the contents of TSP Talk.com and accepting the email alerts, you must agree to the Terms of Service.  Thank you. TSP Talk