Market Comments
 
April 4, 2005
                                               
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Today's Comments (Short Term Outlook)

Update:  Moving to 60% C, 40% S fund this morning.  It will be effective Tuesday 4/5.  Hoping fully this is the "whooosh!"

 Deep thoughts, by Jack Handy.

When I set out to write these comments each night I try to think of a couple of main points for you to consider.  I don't want to get too lengthy as I realize we don't have all day to think about our TSP decisions.  I just like to give you something you may not hear elsewhere and that may leave a little room for your interpretation.  Of course I always put my spin on things based on my current market bias. According to last week's poll some folks would like to get more information packed into the comments while others would like me to explain things in less technical terms.  I'll try to consider both but forgive me if I stray.  My brain is an old dog.

I feel like I have a lot to talk about today.  I want you to know my thinking on the various time frames we face.  How you approach the next day or week may be different than what you may expect in the next 3, 6 or 12 months.

Right now I think the market is feeling around for a bottom.  All of the ducks are not quite lined up in a row yet but they rarely do line up perfectly.  I'd never be in the market if I waited for them all.  Since it's never cut and dry, short term market timers have to make some educated decisions based on the information we have at the moment.  With the jobs report Friday bringing the market to its knees (see below for more on this), the best thing we might want to see is a big whooosh! down Monday or Tuesday to get this over with.  A move to 1163 on the S&P 500, or preferable just below it, will likely set up a panic bottom and put the market in position to rally.  If it happens, don't panic.  It's a good thing.

Here's what I am seeing:

- The market is oversold and sentiment readings are telling me the risk reward play for the short term is to be invested in stocks.

- While I like the idea of the market rallying here, the intermediate term outlook,  3, 6 or 12 months, may not be rosy.  At best I am thinking we will see a similar market situation as we had last year where you have to be quick to time the market.  Just when things look their best you have to bite the bullet and go into protection mode, and when things look dreadful (as they do now) you should be considering getting into stocks.  No matter how often I do this, it is never easy.  It goes against human nature, hence the contrarian approach. 

- Like last year, I believe the next big leg up for the market won't show up until late this year or early next year.  In the "suggested" account allocations on the longer term market comments page, which is more for the buy and hold investor, I show allocations between 60% to 85% stocks this year.  If you don't want to play the market wiggles, and I don't recommend most people do, it is wise to keep a little of the powder dry (put something in G and or F funds) for now. 

- I have been less excited about the S fund lately because of rising interest rates but Jason Goepfert of sentimentrader.com has done some research on the sentiment of small cap funds.  Basically, like me, people are avoiding small caps like the plague.  As a contrarian investor, that may mean we should be considering the small caps again.  At least for now.  Since 1987 the Russell 2000 small cap index was up 65% of the time in April with an average return of 1.2% For the record, March is up 67% of the time but that didn't help this year. 

- The dollar continues to hold up when a pullback was the more expected result.  Maybe the I fund is not the best fund right now if we are expecting a rally in U.S. stocks for if we do get that rally, I might as well take what the C and S funds give us and not bet too heavily on an I fund that could be battling a rising dollar.

- This was talked about on the message board but I'll quickly mention it here.  The jobs report Friday was very weak.  The number missed by 110,000 jobs or 50%.  That's the bad news for the economy.  The good news is, after the expected negative shock from the market, historically the S&P 500 is up 10 trading days later.  I don't know if that is because of an overreaction to the downside or if it is because investors realize that interest rates may not have to be raised as hastily.  Whatever it is, the trend is pretty strong that the market will pick up within a day or two.

Sorry I don't have any colorful charts today putting these comments on the boring side.  I just wanted to fire some thoughts at you that I have been thinking about this weekend.  I probably forgot a couple of things but there's always tomorrow.

I plan to make some sort of move today but I want to see how the market opens up first.  My thought is to pull out of the I fund and maybe plant something in the S fund.  I will send out an email alert as soon as I decide.

That's all for today.  Currently 50% C, 50% I fund.  See you tomorrow.

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