Today's Comments (Short Term Outlook)

Next pullback will be a big test The market fought off some early selling to finish the slightly to the upside.  There are investors out there who are jumping in to buy the dips, and it is keeping the indices buoyant for now. I still believe we will see a pullback in the S&P 500 that should give us a better buying opportunity, but who knows how long this market can continue rising before that happens?  Assuming we do get that pullback - and preferably back toward the 200-day exponential moving average (EMA) - we do want to make sure that it holds and does not go back below the 200-day EMA.  That would be a sign of a failed breakout.  So far, so good, but we haven't had the pullback yet. We are also hoping to see the 50-day EMA move above the 200-day EMA for a confirmation of a bull market move.  If you notice below, the 20-day EMA is about to overtake the 200-day EMA, and only a hasty decline this week would prevent that from happening.                  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk One of the reasons I am concerned about the market falling below the 200-day EMA again and being prepared to jump back on defense (in outlook) if that happens, is because some of the models that I follow, are showing some ominous signs.  I am sure if you look hard enough at any time, you will find something somewhere that will give a bearish sign, just as you could find a bullish indication at any given time, but the ones I am watching do have some credibility with me so I will use that 200-day EMA as my guide. The smart money of the OEX put/call ratio has been moving in a pretty consistent counter move to the dumb money put/call ratios of the Equity and CBOE.  As you might expect from our years of following this indicator, the recent rally is bringing out the bullishness in the dumb money put/call ratios, while the smart money is starting to turn back down again.                   Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Beginning in early June, the dumb money started getting more and more bearish as the market pulled back, while the smart money was buying calls (getting bullish).  We've had a strong rally and those trends are reversing.  The 10-day moving average of the smart money is not at an extreme, but the dumb money does seem to be getting close to overly bullish readings: a possible concern for stocks going forward.  But again, we will welcome a pullback at this point.  It will give those of us who are on the sidelines a better opportunity to buy lower.  We are either closing in on a great confirmation of the start of a longer-term bull market, or we are about to find out that this rally was a major fake out.  We are not out of the woods yet, and I think we may only get our answer after the next pullback.  It either holds and we need to buy aggressively, or it does not and we go back to the bear market and defense. With the new TSP transfer limits you don't get many chances to be correct your mistakes, so unfortunately we have to look for more confirmation and longer-term signs.  I made a nice 5% during a 4-day period early in July, but decided to book those gains by selling.  That left me with no transfers left for the month and that can be frustrating when the market continues rallying.  A recent poll here showed that 85% of you who read this site, are dissatisfied with the new transfer limits.  Some of you said a few more trades would be fine while others would not be happy until the limits are lifted.  I sure wish they listened to us and made us pay for the transfers.  2008 was tough for many investors and market timers, and 2009 can be as well if you've have experiences like I had this month.  Volatility is likely to continue for a while and there will be many lost opportunities if we can only make the 2+ transfers. That's all for today.  Thanks for reading!  We'll see you back here tomorrow!