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That's all for today.  Currently 100% G fund.  Thanks for reading.

7/18/2005
July 18 and the week that follows.

Although there is nothing anyone can do about it now, July 18 is historically a poor day.  One of the worst of the year in terms of percentage of time this date is positive.
 

It also happens to be the Monday following options expiration week, typically a below average return week. 

Jason Roney from Minyanville.com website tells us, “The Monday after the July expiration has the highest percentage of negative closes for the S&P 500 futures. Since the inception of the futures in 1982, the Monday after July expiration closed down 19 of 23 years by an average of -.58%. The bias is just as negative if the S&P was near highs going into expiry (as is the case currently). In 12 of the 23 years, the S&P had recorded at least a 5-week high during the week of expiration, and on the following Monday, the S&P closed down 10 of those 12 years by an average of -.99%.”

On Wednesday and Thursday, for the first time since October 5, 2000, the S&P 500 has closed in positive territory for two days in a row at the same time there were more declining stocks on the NYSE than advancing ones both days. This has happened 12 times in the past eight years. 10 days later, the S&P 500 was lower 8 of the 12 times, with an average return of -1.3%.

Let's take a look at how the last six weeks have played out.  On 6/03 I decided to start moving out of stocks in steps.  I went from 100% stock funds in early June, to 75%, to 50% to 30% to 0% over the course of about two weeks ending 6/15.  Points A to B on the chart below.

                   Chart provided courtesy of www.decisionpoint.com 

The market behaved nicely and just at the point I went 100% G fund, the market started to give way with a couple days of big losses, going from points B to C.  The indices floundered for a while and I anticipated one more good push down expecting the chart to mimic the 1994 chart which would have brought the S&P 500 down to about 1150.  On the morning of July 7th, the day of the London terrorist attacks, the Dow futures were off over 220 points.  It looked as if the catalyst came for that next push down.  Instead, the S&P 500 actually reversed the early morning weakness and baffled me by ending the day in positive territory and we obviously ended up at point D.  The market always seems to do what we least expect.  Some say they expected it but I doubt on the morning of July 7th they were very confident about it.

I was still not convinced that we had put in a bottom as there were way too few bears out there.  But for five days the market surged forward.  As we saw late last week, the bearish percentage of those polled in the AAII Investor Sentiment Survey dropped to 14%.  The new high that the S&P 500 made last week was a bit of a surprise but it brought my indicators even deeper into caution mode.

Now we face the dreaded week following options expiration week and the market is going to be up against some resistance.  There will be a lot of earnings reports announced this week with Tuesday's list containing some major company's reports.  I feel the market will sell on the news, whether it is good or bad news.  It's a good possibility that those reports will be strong because I can't see why the market rallied so strongly in front of the reports.  As I've always said, the market seems to know before anyone else.  I'm not talking insider trader, but rather a mastermind type activity.  Like when the market dropped 10% during the two weeks leading up to 9/11/2001. 

Don't get me wrong, the strength of the market over the last week makes me wish I had been invested up until now, but I don't think TSP will let us go back change that.  We have to decide what to do next.  I don't like to move in and out of stocks as much as I used to.  It is a combination of not being able to access the during working hours anymore, and trying not to confuse those who follow these transactions.  When I jump around people end up being a day or two behind because for one reason or another and they end up frustrated.  I have the emails to prove it.    Hence, I've been making fewer moves.

That's all for today.  Today's the last day to take this week's TSP Talk Sentiment Survey.  It is over in the left hand column if interested.  You can also sign up to take it via email.  Currently 100% G fund.  Thanks for reading.