Vacation time
Stocks started out of the gate very well on Monday, only to see all
of the gains disappear by the close. The difference between
what happened yesterday and what has happened in the past couple of
weeks is that the action was slow and volume was much lighter.
It sounds like Wall Street is ready for its summer vacation.
That could pose a problem for those of us looking for big move
higher as light volume usually means the bigger money managers are
not involved and it will be tougher to trust any move. And
since I believe the smart money is doing most of the buying right
now, once they go on vacation the smaller investors can do some
selling without much opposition. We'll have to see if the
prior low can hold up in spite of this potential problem we face
between now and after Labor Day Weekend.
Taking a look at the pullback in the S&P 500 this summer, I have
noticed how similar it is to the pullback we saw this past winter.
We see that at point (A) the index slowed down and flattened out.
After a few days of light selling, a larger sell-off manifested (B).
That was followed by about a week of continued losses with an
occasional positive day in there, that culminated with a low at
point (C). A sharp rally took us up to point (D), but it
turned out to be a sucker rally as the S&P turned back down and
tested the point (C) low at point (E). A couple of back and
forth days at point (F) in March led to another quick move to the
upside to point (G). We seem to be at point (F) right now.
Charts provided courtesy of
www.decisionpoint.com
The summer doldrums are kicking in and it could be what takes the
comparison off course, but then again, volume dropped off a little
in March near point (F) so you never know.
That was just an observation and may or may not be something to keep
an eye on. I enjoy that type of thing. I believe the
market repeats itself over and over and that's why I use indicators
and charts to try to figure out what will happen next.
Speaking of what might happen next, Jason at
www.sentimentrader.com
compared the recent activity in the
VIX (Volatility
Index), to that of similar activity in the past. He says:
"What I looked for was any time the
VIX was up at least 5% one day, then gapped open the next day and
scored at least a one-year high, then gapped down the following day
and closed at least 5% lower.
"In the past 15 years, I can find four
other similar reversals in the VIX. The dates of those four
occurrences were 8/19/97, 10/9/98, 4/18/00 and 9/24/01. By one
month later, the S&P 500 was positive each time by an average of
+6.2%. On average, the most that index went against us during that
month was -2.0% compared to an average maximum gain of +8.2%.
"By three months later, all four were
still positive and the average gain was +11.9%, and with an average
maximum gain more than four times greater than the average
drawdown."
So, again, the intermediate-term continues to look good based on
many of the indicators. If we can just survive the next couple
of weeks I think we'll be OK.
Trader Fred's
TSP
Trader System
is remains in the F-fund
and we are seeing another move down on the market strength chart.
This is my big concern for the short-term.
Read what Trader Fred has to say today on his
system
page.
The
EbbChart System
is in the G-fund today but will move again this
morning. Find out more on the
ebbchart system page.
I have not exactly followed the systems we offer on TSP Talk
verbatim this year and my return reflects the consequences of that
decision. Using the C fund's +3.63% 2007 return as a
benchmark, TSP Trader System is now up 8.20% and the Ebbchart System
is up 14.05%. Both systems are currently out of the stock
funds and will be in the F-fund for Wednesday.
On the other hand the Sentiment Survey System, which is up 13.37%
this year, is 100% in the S fund, although there is a difference
between this system and the other two, in that it only makes changes
on a week to week basis.
Then there is the chart above that shows we could move sideways
before a big up move. I checked Trader Fred's strength chart
just prior to that March 19th rally above (points F to G on the
chart above) and the strength chart was moving down in front of it
as well.
One more thing, today is the 10th trading day in August. See
the August seasonality chart at the bottom of this page.
I guess I am looking for an excuse to stay invested.
Everything I look at says any more downside should be limited.
I am currently 25% C, 50% S, 25% I-fund but I will continue to take
the short-term day-by-day. I won't rule out a short-term
transfer out of stocks if something new presents itself. See you tomorrow.
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Prior Day's Market Comments
(see archives in left column
menu for earlier comments) |
8/13/07
So
far, so good
The early 200-point decline in the Dow on Friday, reversed and
closed down just a modest 31 points. The S&P 500 managed
to finish higher.
Do you know what this sequence of percentages represents: 0.44%,
1.44%, 1.34% and 4.41%? It happens to be last week's
percentage gains for the Dow, S&P 500, Nasdaq and Russell 2000
respectively. That's a little surprising considering the
amount of fear still in the air. And again, we are probably
spoiled as the S&P 500 is just 6.6% off of its all-time high.
We still have not seen a fairly common 10% correction in over 4.5
years - never mind a 20% bear market decline. And now, because
of the recent developments in many of the indicators I follow, I'm
not sure we'll see a 10% correction this time either, although it is
certainly not out of the question given the volatility.
You can see below that so far, the low made last Monday has held up.
A passed test - if you will. However, we would need to see a
move above 1504 before we can say with more confidence that this
downturn is over.
Charts provided courtesy of
www.decisionpoint.com
Although some might say, "It's different this time", we are looking
at what could be another "routine" buying opportunity in this
current 4.5 year bull market. We had one in March of this
year, and one last summer.
I missed the March buying opportunity. I did buy the bottom of
last summer's sell-off but I ended up selling way too early
underestimating the strength of the market as it climbed up for
about eight more months before the March dip. I expect the
volatility to continue and we could see more tests of the lows in
the short-term, but everything I watch seems to indicate we have a
nice intermediate-term opportunity on our hands.
We have a few important economic reports this week with the PPI on
Tuesday, the CPI on Wednesday, and some housing starts reports later
in the week. These could be market movers as investors are
still trying to gauge where the Fed is on interest rates.
Speaking of the Fed, we had the mixed views on what a Fed rate cut
might do to the market. Some said it is what the market needs
to stop the bleeding, while others believe a rate cut could be a
sign of a bigger problem. The Fed injected the banking system
with billions of dollars on Friday and that seemed to sooth the
market. The fact that they are not cutting rates could be a
sign that they are not too worried - the opposite effect of spooking
the market with an emergency cut.
We'll just have to see how it plays out and see if any more trouble
is around the corner. The bad news seems to be dripping out
rather than everyone (the credit companies) being up front.
The TSP Talk
Sentiment Survey System remains on a buy signal for this week
after the survey's neutral 1.61 bulls (52%) to bears (32%) ratio.
Trader Fred's
TSP
Trader System
is remains in the F-fund
but one of the two F-fund submodels gave a sell signal COB Friday.
He also shows another dip in the markets strength chart. Not a
great sign.
Read what Trader Fred has to say today on his
system
page.
The
EbbChart System
is in the I-fund today but it's on the move again. Find out more on the
ebbchart system page.
I am fully invested right now and looking out several months I am
comfortable with that. However, the short-term schizophrenia
of the market is going to play with our emotions and if downward
momentum continues, and we do see a new low on a closing basis on
the S&P, I may have to rethink things. Just as the market
remained buoyant much longer than I expected earlier in the year,
the downside could also be unreasonably drawn out. This is an
options expiration week and with Trader Fred's system still on a
sell signal for stocks, and the strength chart ticking down
again, I may continue to temporarily move in and out of defensive
mode after pockets of strength.
That's all for today. I am currently 25% C, 50% S, 25% I-fund.
See you tomorrow.
Chart provided courtesy of
www.sentimentrader.com
-------------------------------------------------------------------------------------------------------------------
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