Thrift Savings Plan Talk

On to plan B.

Yesterday I discussed the possibility of getting back into stocks by the end of the week if the market continued to go down. Instead, the market gave us a pretty impressive rally.

Putting things in perspective however, the 114 point rally for the Dow yesterday came on the heels of a six day, 333 point, drop. I am not convinced this is much more than a decent dead cat bounce.

The reason for the rally seems to have been the high Consumer Confidence number, combined with a $2.34 drop in the price of oil. I don't want to sound as if I am in denial, but I can poke a couple of holes in the theory that we are going to head straight up from here.

First, oil is $4 off the recent high, but still $10 a barrel above where it was just a few weeks ago. As far as the consumer confidence index goes, we have another strong contrarian indicator here. This comes from an old article from sentimentrader.com...

"Today’s Consumer Confidence number was accompanied by the usual interpretation by “expert” economists about what it all means for the stock market. No doubt, they get beside themselves when confidence numbers are high – it shows that we’re feeling good, which means that we tend to buy more stuff, which means that companies sell more products, which means higher stock prices.

But they’re wrong. Three decades worth of data proves that when consumers are shy, we should buy; when consumers feel swell, we should sell. This is opposite what is commonly discussed in the popular media and TV, but for some reason those folks just don’t look at the hard facts. When Consumer Confidence was at its depths, the S&P 500 was higher after six months a whopping 91% of the time. At the opposite extreme, when consumers felt the best, it was a 50/50 proposition to see a higher market, and the average return was miniscule."

So while the market reacted very positively to the 105.8 reading, a three year high, it doesn't really mean much to stocks. If anything it is bad news. It also gives Greenspan a reason to continue raising interest rates.

We seemed to have seen what is called end of the quarter window dressing. Money mangers are scurrying to buy stocks that will help pretty up their quarterly reports. This could last through the 30th, but of course the Fed will do his interest rate dance Thursday and that will likely shake things up. So while I was thinking Friday may be a good day to get back in, now I think Friday or Tuesday (Monday is a holiday) could be the day the selling resumes.

The market seems to have hit some short term support but the damage done over the last few days won't quickly be shaken off in my opinion. If oil jumps back up or if Greenspan has anything negative to say, we may head right back down.

Chart provided courtesy of www.decisionpoint.com

The indicators never did get fully oversold so it won't take much to put them back into overbought territory.

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

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