The credit woes made another rude appearance yesterday spooking the market into a free fall.  This one left a mark.  In the mayhem, we saw support area taken out, while others held.  I have been watching these support areas and posting them here for a while.  Where the selling ended and buying started, and where the S&P closed seems quite clean to me. 

         
  

You have to be a "glass half full" type of person to appreciate that the Dow actually ended the day with a 140 point rally as the it closed down 311 after being down as much as 450 points.  I just hope (bad word when trading) that the 140 points isn't the dead cat bounce I'm looking for today. 

If you are on our email alert list you saw that I went ahead and moved to a 100% S fund allocation for today.  That is a risky move and I really doubt that we have seen the end of this selling, but the market is so oversold that a bounce here is very probable.  I used the S fund because it has been dragged down the most over the last few weeks.

The oversold condition in front of the last few days in July, which tend to be very positive historically, and the EbbChart System, which has been hit hard this week but is looking for a big day on Friday, could add up to a little relief rally, but I don't want to get too bullish just yet.

  

                               Chart provided courtesy of www.decisionpoint.com


                                 Chart provided courtesy of www.sentimentrader.com

We will probably have to see at least a test of yesterday's lows hit sometime in the next week or two because this action does not have the makings of a "V" bottom.  "V" bottoms are usually formed when there is a surprise news event which causes a short-term temporary overreaction to the downside, such as an overseas terrorist attack, etc.  This credit situation is permeating throughout the market and may linger a little longer so we may not see a quick long-term reversal back to the bull market. 

I plan to move back the G or F fund very quickly, possibly this morning depending on the action.  But I am not forgetting that I actually picked the bottom a year ago but failed to stay with the rebound missing out on the bulk of the rally. I'll be on the lookout.

Trader Fred's TSP Trader System remains on a sell signal and still has not seen a move up on the strength chart.  This is a concern and I am not ready to trust this market for more than a few days as any bounce could be short-lived  based on this reading.  Read Trader Fred's commentary on the system page.

The EbbChart System is in the I-fund today and has made an adjustment to an upcoming signal.  Read more the ebbchart system  page.

I could probably write another couple of pages about why the market dropped, why or why it may rebound, why we should discount one indicator or believe another, but we know the market is going to do what it is going to do and we want to be prepared.  My plan is try to catch a little rebound, then go into hiding again.  I don't know how much more damage might be done in the coming weeks but I am seeing what I wanted - a 5% to 10% correction as the S&P 500 has already dropped 6% from its high.

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

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