Stepping lightly
Stocks dropped sharply out of the gate yesterday as
the Dow was down 90 points within minutes of the
opening. The drop brought the S&P 500 right
down to the support area we talked about yesterday
(the support line and the 50-day moving average) but
quickly rebounded from there. By the close the
Dow was up over 50 points and percentage-wise, the
S&P and Nasdaq did even better.
Chart provided courtesy of
www.decisionpoint.com
Usually a capitulation / panic type sell-off dips
below support taking out the stops put on by
investors and traders, before rebounding. This
one was almost too clean as the buying started right
at support. This is either another sign of a
very strong market that will shrug off anything that
gets in its way, or it is a sign of possible over
complacency. If it is the latter, it will act
as a "dead cat bounce" and we could see more selling
today or early next week. Otherwise it will be
business as usual for the bulls.
Wednesday's 146 point sell-off was blamed on a
rebound in interest rates. I thought it was
interesting that interest rates increased again on
Thursday, but this time investors shrugged it off.
Again we have to ask if this is a market that will
ignore bad news or is there something else at work
here? I did notice that while the 5, 10, and
30-year bond yields moved up, the yield of the
90-Day T-Bill, the one we are watching and comparing
to the Fed Funds Rate, moved down. That keeps
the Fed rate cut watch intact.
Today is Friday and it's difficult to remember the
last Friday that did not finish in positive
territory. New merger and acquisition
announcements have been the norm on Monday mornings
and people are buying in front of the weekend to be
onboard. Is this a case of a trend that, once
noticed, ends? It sure seems like everyone is
talking about it.
A quick check of the sentiment surveys shows:
AAII Sentiment Survey: 43% bulls, 34% bears.
That moved from overly bearish to neutral.
TSP Talk Sentiment Survey: 46% bulls, 37% bears.
That 1.24 to 1 ratio is overly bearish for us, which
has been bullish for stocks going forward, so the
system remains on a buy signal and 100% S fund for
next week.
*Investors Intelligence Survey: 53% bulls, 19% bears.
That is overly bullish thus bearish for stocks.
That's one overly bullish, one overly bearish, and
one that is neutral. I wonder what people are
really doing? *The Investors Intelligence
Survey is a slow moving indicator and not one we
monitor as closely as the other two, but I will look
at if the readings are extreme.
The dollar was up again yesterday as was oil.
Trader Fred's
TSP
Trader System remains out of the market and
while it tends to buy the dips, it is still looking
for more short-term weakness.
Read more from Fred on the
system
page.
The EbbChart System
is in G-fund today but will make another interfund
transfer this morning. Read more on the
ebbchart page.
That's all
for today.
I am currently 100%
F fund. If we have another sell-off this morning, I may move into
stocks because both the EbbChart and TSP Talk sentiment survey agree to
be in stocks next week. Have a great weekend!
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