The relentless market continues up.
I don't see any imminent reason for the market to fall, but the short term risk / reward is getting higher. For that reason I chose yesterday to put 25% into the G fund. I am now 25% G fund, 50% C and 25% S.
The decision going forward will be whether to take more out of stocks on more strength, put that 25% back into stocks on weakness, or take more out on weakness. The short term indicators will help me determine that.
I had mentioned the "smart money" the other day. They had temporarily become bearish recently (believe the market could fall) and that is bearish for the market.
The "dumb" or "less sophisticated" money, also called "the herd", is back to being very bullish (they believe the market will go up). Back in March and April I had talked about this. While the smart money was buying in late March / early April, the dumb money was still very bearish and they sat on the sidelines for most of this rally. Now they are bullish and the smart money is selling to them. This could be a very temporary situation as the market weakness we saw only a couple of months ago is still very fresh on people's minds.
So how bullish is the herd? Right now, of those polled 49% said they are bullish and only 19% say they are bearish. That is nearing extreme levels...
Chart provided courtesy of www.decisionpoint.com
The last two times the bullish number hit 50% we've had a pullback. The last time the bearish percentage went below 20%, we had a strong decline. Also the 2 to 1, bulls to bear ratio is a sign of a possible pullback. As I said, it may not be imminent, but it is worth being prepared with a plan.
There are other signs such as the willingness for investors to get back into the very speculative sectors of the market. I had talked about how defensive investors were getting back in April. Things sure have changed since then. This data comes from Jason Goepfert at sentimentrader.com...
"The Rydex Internet Fund had only $4 million invested in it on April 20th. Investors have once again discovered internet stocks, and assets in the Internet Fund have ballooned by 975% to $43 million as of yesterday’s close. Historically, when assets in the Internet Fund have reached $40 million, internet stocks have run into trouble. When that has happened over the past 5 years, the internet sector tracking stock HHH has shown a one-month return of -8.2% (that’s not a misprint) with only 18% of occurrences being positive. Even just since the technology bull market began in October 2002, the average one-month return has been -8.5% with precisely 0 of the 34 days showing a positive return (those were spread across 5 distinct time periods)."
Now I'm not saying the market is ready to tank. If I thought that I'd be going 100% into the G fund. Rather, I am pointing out why the upside could be, but may not necessarily be, limited. Just as we saw on the way down, the momentum of the market sometimes takes its time changing direction. My indicators usually turn out to be correct, eventually. But the timing is not always precise. It could take a few weeks before things change and being early can cost you, as it did me being two weeks early picking the bottom.
Just be careful and don't get married to be too bullish, nor too bearish. We are seeing some yellow flags and that just means to slow down. We don't have to stop just yet. A decent pullback could be on the way. Timing it will be tough. That is why I am getting out slowly. I don't want to miss too much potential upside action.
That's all for today. Currently 25% G, 50% C, 25% S fund. Until next time...
I don't see any imminent reason for the market to fall, but the short term risk / reward is getting higher. For that reason I chose yesterday to put 25% into the G fund. I am now 25% G fund, 50% C and 25% S.
The decision going forward will be whether to take more out of stocks on more strength, put that 25% back into stocks on weakness, or take more out on weakness. The short term indicators will help me determine that.
I had mentioned the "smart money" the other day. They had temporarily become bearish recently (believe the market could fall) and that is bearish for the market.
The "dumb" or "less sophisticated" money, also called "the herd", is back to being very bullish (they believe the market will go up). Back in March and April I had talked about this. While the smart money was buying in late March / early April, the dumb money was still very bearish and they sat on the sidelines for most of this rally. Now they are bullish and the smart money is selling to them. This could be a very temporary situation as the market weakness we saw only a couple of months ago is still very fresh on people's minds.
So how bullish is the herd? Right now, of those polled 49% said they are bullish and only 19% say they are bearish. That is nearing extreme levels...
Chart provided courtesy of www.decisionpoint.com
The last two times the bullish number hit 50% we've had a pullback. The last time the bearish percentage went below 20%, we had a strong decline. Also the 2 to 1, bulls to bear ratio is a sign of a possible pullback. As I said, it may not be imminent, but it is worth being prepared with a plan.
There are other signs such as the willingness for investors to get back into the very speculative sectors of the market. I had talked about how defensive investors were getting back in April. Things sure have changed since then. This data comes from Jason Goepfert at sentimentrader.com...
"The Rydex Internet Fund had only $4 million invested in it on April 20th. Investors have once again discovered internet stocks, and assets in the Internet Fund have ballooned by 975% to $43 million as of yesterday’s close. Historically, when assets in the Internet Fund have reached $40 million, internet stocks have run into trouble. When that has happened over the past 5 years, the internet sector tracking stock HHH has shown a one-month return of -8.2% (that’s not a misprint) with only 18% of occurrences being positive. Even just since the technology bull market began in October 2002, the average one-month return has been -8.5% with precisely 0 of the 34 days showing a positive return (those were spread across 5 distinct time periods)."
Now I'm not saying the market is ready to tank. If I thought that I'd be going 100% into the G fund. Rather, I am pointing out why the upside could be, but may not necessarily be, limited. Just as we saw on the way down, the momentum of the market sometimes takes its time changing direction. My indicators usually turn out to be correct, eventually. But the timing is not always precise. It could take a few weeks before things change and being early can cost you, as it did me being two weeks early picking the bottom.
Just be careful and don't get married to be too bullish, nor too bearish. We are seeing some yellow flags and that just means to slow down. We don't have to stop just yet. A decent pullback could be on the way. Timing it will be tough. That is why I am getting out slowly. I don't want to miss too much potential upside action.
That's all for today. Currently 25% G, 50% C, 25% S fund. Until next time...
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