Waiting on something.

If a market trader thought stocks were going to rise they would put their money into stocks.  If they thought the market was going to fall, they could either keep their money in cash, or they could bet against stocks by shorting them.  Shorting is a bet that stocks will fall.  The trader would actually make money if stocks did fall, or lose money if they went up.

We only have two choices;  In stocks, or out (or a combination of both).  If we did have the option to short the market it would make things very interesting for us, but I don't think I would be doing it now.  Being in cash is not necessarily a bet that the market will go down.  It is just a choice to play it safe because the risk / reward is not great at the moment.  The market indicators are yellow, not red.  I just wanted to make that clear to those of you who think I am too bearish. 

I have been comparing the current chart to that of the 1994 market every chance I get.  But if you look at a chart of 2004 you'll see we had a similar big decision to make this same time last year.  I was looking for a strong second half to 2004 but I was six weeks early with the call.  I was anticipating a breakout to new highs as the S&P 500 approached the March and April 2004 highs.


                       Chart provided courtesy of www.decisionpoint.com 

Instead of making new highs, the market did an about face and headed straight down until mid-August. 

                              Chart provided courtesy of www.decisionpoint.com

The rally did start in August, and what a rally it was.  But the summer damage was done.

Here's the dilemma.  In January 2004, the market was overbought and I was expecting a pullback that didn't happen for a few more weeks.  I sat on the sidelines while the market continued upward.  The pullback came but I missed some nice gains. 

In January 2005 I was seeing similar overbought readings but I thought, "I'm not going to be fooled again." so I decided to stay in stocks until I saw the signs of a pullback.  Well I was blindsided by a 3% drop during the first week of the year.

So here we are at the point where the market is on the cusp of a breakout to new highs.  Last year I was wrong to stay invested as the market pulled back hard in July.  One would think to not make the same mistake again by getting out of stocks.  Will I be fooled again?  It seems the market loves to play these little games with us.  Just when you think you know what it is going to do, it says, "Not so fast!"  The market has humbled me many, many times.

I've said this before so this is for our new readers and a reminder to the regulars.  I don't know what the market is going to do.  I wish I did, but I don't.  I don't but I do know how to make an educated, informed guess.  That's all it is because NOBODY really knows what is going to happen (Except Martha Stewart, of course).  You just take all the information you have and make your best guess.

My current guess is that the market needs a rest.  I'm not saying we are heading into a bear market.  I just think the market needs to refuel. 

That's all for today.  Currently 100% G fund.  Until next time...


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