The news finally got to the market. 

Another terrorist attack on Thursday brought the market down early and this time we didn’t see a rebound.  This news seemed to trump EBAY’s positive earnings report and the un-pegging of the Chinese currency (yuan) to the U.S. dollar.

Lately good news has been rewarded and bad news was swept under the table, which is usually a sign of a very strong market.  If my indicators weren’t in a cautious zone I’d be on board with the bulls.  But the market didn’t rebound after the terror event yesterday and possibly it is starting to take notice of potential problems.  I don’t want to get too carried away by a small pullback after a strong rally.  That is very normal.  I am just noticing a change to the recent ‘buy the dip’ trend.  

We get another test today as Google came out with very strong earnings after the close yesterday; beating estimates by a dime a share.  Sounds good but at last check the stock was down over $19 in after hours trading.  This could lead to a negative open (I'm writing this Thursday night) and another chance for the bulls to buy the dip.  Is there anyone left to buy or have all the bears already converted to bulls?  More on that later.

I talk about odds occasionally but maybe I don’t stress it enough.  We all know that my indicators can be off by many days to many weeks.  Usually early.  But the indicators are a culmination of the underlying market action and eventually the market seems to do what the indicators say it will do.  If the timing is off too much however, it can nullify the advantage.

Advantage is the key word and here is another analogy of how to take advantage of the information you have.  If the TV weather person says there is a 60% chance of rain, does that mean it will rain?  Not necessarily.  But you better bring an umbrella just in case and leave the leather jacket at home.  If it doesn’t rain, don’t shoot the messenger.  After all there was a 40% chance that it wouldn’t rain.  He or she was just reading their gauges, indicators, meters, whatever they use, to determine the probability.  But if it does rain you’ll be glad you have your umbrella (G fund) and not  putting your nice leather jacket (your assets) at risk.  You can wear the jacket when the skies clear up more.  Get it? 

Here’s another gambling analogy that works well with our situation.  Let’s say you are playing blackjack and you are counting cards to determine when the deck gives you the best advantage to win.  But the current count is telling you that the dealer has the advantage in the next hand.  What's your best play?  Bet it all?  Make a small bet?  Wait for the next hand?  I’d say C.  Why bet anything when the dealer has the advantage?  Cash can be your best bet at times.  Let the gamblers at the table take the chances.  You can sit back and wait until the deck's count gives you the advantage.  They'd throw you out of a Vegas casino for doing that but in the market it's perfectly acceptable. 

If you are bullish and believe the market will go higher from here, those analogies still have meaning.  Your count and / or weather person may be telling you something different.  I believe in the indicators I use, and have used for years, and they tell me that the dealer currently has the advantage.

Today is another historically weak day.  A day when we would expect a rebound in a strong market. 

Make no mistake about it, I do believe the market is acting very strongly.  It may even be worth buying any significant sell off at this point (like we saw on 7/7).  It depends how oversold the short term indicators get.  Again it may depend on your time horizon and how much "wiggle" you want to play.  Perhaps 4, 6 or 12 weeks from now the market will be lower.  But if you are nimble you could buy some of these sell offs for a quick rebound.  I may or may not get involved in this.  It's tough to do and can backfire on you. 

Why would I even considering getting back in after all that has happened?  The bears are actually coming back some...





                  Chart provided courtesy of www.decisionpoint.com

What a difference a week makes.  A jump from 14% bears to 27% bears is a good start.  I like to see 35% to 40% or more before I get back in and I'm guessing the terrorist attack, which took place AFTER this survey, may have pushed this 27% even higher.  Take a look at the change in the ratio.  It went from over 4 to 1 bulls to bears, to 1.5 to 1 bulls to bears.

There are definitely some issues still, but at least we are moving in the right direction.

That's all for today.  Currently 100% G fund.  Have a great weekend!