Is the market going to climb the proverbial wall of worry, or should we be worried?
I have said it before but some of the best market runs seem to come when I am the most nervous (while in stocks). I have also been clobbered when I was pretty confident with my stock positions. Right now I am confidently nervous.
So many of my indicators are showing signs that the bull market is ready to forge ahead. The ARMS index 10 day moving average, has hit the 1.3 level I was looking for. Those are not the very short term indicators however. The shorter term indicators are saying we have gotten a bit overbought here yet the indices have barely made a move. And the small move upward we had has been on low volume. More danger signals.
I am nervous enough to want to step aside completely, BUT I WON'T. Not completely anyway. I can't sit here and wait for all the ducks to line up. I have to have some sort of discipline in place in times like these when the three legs of the market, monetary conditions, valuation and psychology, are all in good shape as they are now. I think it would be wise for me to keep at least 60% to 75% in stock funds at all times, until one of those legs starts giving out. Keeping some ammunition (cash - money in the G fund) when things are overbought or when important reports or announcement are due (such as Fed interest rate meetings or jobs reports etc.) allows you to buy any irrational, overblown sell offs.
Right now the market is getting overbought in the short term as I mentioned. It's the first time we've seen that since early April. Too bad we didn't really have a decent rally to show for it. There is still some room to move up but I'm not sure the market has enough momentum to do that.
Chart provided
courtesy of www.decisionpoint.com
For this reason I will keep my 25% in the G fund for a bit longer. I am not panicking. I just want to be ready to take advantage of any weakness rather than getting fully invested at this time.
I think I will make a move out of the I fund as well. I hope this isn't a day late as the combination of a rising dollar and the potential for any weakness in the indices, U.S. or EAFE, will be a double whammy on the I fund shares. As I illustrated as a possibility yesterday, the I fund had a small gain but the EAFE index gain was about 4 times higher (.15% gain vs. about a .60% gain). Not a major difference but I believe the rising dollar is going to make it tougher for the I fund for a few days or weeks. I won't say it will be down for sure, but I think we will be better off in the C and S funds. Again this is for short term traders.
Bush's speech was positive but may not be enough to put the market at ease. I see the S&P futures are down slightly as I write this, and the Asian markets are in the red as well. Assuming we don't get clobbered in the morning, I will make a transfer today before the deadline.
That's all for today. Currently 25% G, 25% C, 25% S and 25% I fund. If the market isn't getting crushed in the morning, I will make a move to 25% G, 35% C, and 40% S, which will be effective Wednesday. If we happen to be down big (1% or more) before the deadline, I may go ahead and put more into the stock funds. See you tomorrow or on the message board.
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Highlights from prior day's comments (see archives on left for full
article):
We seem to be stuck in a trading range. Rallies are being sold, but the lows have been holding for about two weeks now. I would say it looks pretty safe to get into stocks completely as the downside risk is limited, but I won't. I still believe I need to trade until I see a more definite breakout to the upside. With the U.S. just weeks away from handing power back over to Iraq, insurgent attacks will likely pick up. This will cause more uneasiness for the markets. The June 30th turnover date also happens to be the day of the next Fed meeting and when we may see interest rates increased (If we don't get a surprise increase before then).
In the recent AAII Investor Sentiment Survey, bears still outnumber bulls 40% to 37%. That's not much but it is only the 3rd time this year it has happened, last week and one week during the March lows. It is a semi-good indicator that sentiment is still "bad" enough for the market to rally.
Some of you may have seen this on the message board. The U.S. dollar has fallen down to the lower end of its upward trading channel, meaning before the end of the week we could see the dollar rise.
Chart provided
courtesy of www.decisionpoint.com
What does the rising dollar mean? It could mean the I fund may have some trouble even if the EAFE index (which the I fund tracks) has a good week. We may be better off in the C and S funds for Tuesday. If that trend line can be penetrated to the downside (somewhere below 90) it would be very positive for the I fund. The problem is a falling dollar means our economy is weakening. I just don't see that as a possibility so I expect the dollar to rise by week's end.
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