Charts provided courtesy of www.decisionpoint.com

We still have to be careful.  Sure, we were extremely oversold and this was a very nice looking reversal, but we could be one headline away from another move lower.  We could also see a rally and a test of the lows in the coming days or weeks.  I'm hearing a little giddiness out there after the reversal, and I'd rather I heard continued nervousness.  As I write this, Japan isn't exactly jumping for joy as the yen carry trade unwinds, and the S&P and Nasdaq futures are actually in the red, even though Hewlett Packard announced a nice earnings report after the close.  This yen carry trade could be the next problem for us.

BUT, and that's a big BUT, whatever happens in the next couple of days or weeks, this could be a great buying opportunity if you are looking out a few months.  Unless the economy is about to go into recession, we are looking at what we have been waiting for, for a long time: A 10% correction.  The S&P was actually down 12% at its low point.

A 5-year chart shows the S&P actually came close to its long-term bullish trendline.  This is either a golden opportunity for us since very few people thought we'd see the level we hit today or, if it doesn't hold, we'll be in a world of hurt since support dries up below that trendline.


                                      Charts provided courtesy of www.decisionpoint.com

Today is an options expiration Friday and the action could be "different".  There are a ton of open put options (bets the market will go down) and there could be an incentive to keep prices down at least early on.  Then, we could see some buying late today or Monday after the options expire.  It's a strange situation since the indexes are down so sharply but some big investors could have a lot to lose if the market takes off out of the gate.  They'd rather cash out there puts with a gain (because the stocks stayed down) and then see stocks rally next week.  This is pure conjecture on my part, but it seems to be a reasonable expectation.  The big boys don't like to lose money if they can avoid it, and postponing a rally until next week could be the best of both worlds for them.

Remember this 1998 chart?  I am posting it again to show you what a double bottom test looks like.  We could see a rally but a future test is likely.

   
                                      Charts provided courtesy of www.decisionpoint.com

Trader Fred's TSP Trader System remains in the F-fund.  This system is not based on opinion.  It remains on the sidelines (out of stocks) because it sees something that doesn't look quite right.  Read what Trader Fred has to say today on his system page.

The EbbChart System got its rebound but the I-fund did not cooperate.  Where to now?  Find out on the ebbchart system page.

The TSP Talk Sentiment Survey System will be in the market next week after the overly bearish 37% bulls, 49% bears, 0.76 to 1 ratio.  This type of reading has been very profitable for the market the following week.

My thinking is that while I really don't want to miss out on a rally and be stuck on the sidelines waiting as I did for many months, but I also don't want to jump in and see something like Wachovia claiming bankruptcy and see another 1000 point drop.  I may just go ahead and buy in and look for a few days of rallying, but while the S&P is below the 200-day moving average, we have to remain on our toes and nimble.  We "should" rally for a few days but if this yen carry trade is as bad as I have heard, it could spoil any rally attempt.

I am going to watch Trader Fred and RevShark closely for the intermediate-term buy signals. I have a feeling these two will benefit from their patience as they don't act on emotions like I have a tendency to do.

I am considering NOT sending out an email alert if I do make short-term trades here and there.  Mainly because I would not recommend them to most of those on the list and I many people get the mails late, then they are buying while I'm selling (or vice versa).  That's not always a bad thing (doing the opposite of me) but I get a lot of email from frustrated members when they can't keep up.  I will always post the moves here on the site though and on the message board. 

The hypothetical long-term account is fully invested and that may be the thing to do.  Then check back at the end of the year.  That's too logical for me.  I like to get my hands dirty and my butt kicked once in a while.  The volatility is just too enticing.

That's all for today.   I am currently 100% F fund but I am seriously considering moving back in today.  Have a great weekend!

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