Should you try to anticipate a bottom?

As I write this Sunday evening the Gulf Coast is bracing for Katrina.  Our thoughts and prayers are with those in the path of this monster storm.  The futures markets are reacting to this event and are down quite significantly indicating a good chance for a negative open Monday morning. 

Many of the short term indicators are near extreme oversold levels indicating that some sort of a bounce could be close at hand.  Being that we have that annoying, up to a day and a half, delay when we make our fund transfers it makes it tougher to react to the market if your trading timeframe is short.  A down morning could turn into a reversal later that afternoon and you would be stuck on the sidelines for another day or more.    You almost have to anticipate and that could either be a disaster or it could pay off nicely.  The tricky market will never make it easy for you.  So should you anticipate?

Back in mid-June, when I had just moved to a 0% stock allocation, the market had an almost immediate three day, 2% drop.  It looked as if I had made a great call.  Then we saw the terrorist attacks in London and the market started to reverse just as the deadline approached that day.  I did not see that rally coming and I sat for three weeks doing nothing.  So now we have a market that has been down for about four weeks and a powerful hurricane is about to do massive destruction to an oil rich area of the Gulf.  Could this be this decline's capitulation?

I hate to try to make that type of decision but because of our delay we are almost forced into it.  It also doesn't seem appropriate to worry about my retirement account when so many lives are in danger, but I guess we can be concerned and prudent at the same time.

Let's talk about seasonality for a minute.  I had mentioned that the last trading day in August tends to be quite positive.  It has been up over 80% of the time since 1950 and shows an average return close to .50%.  The first three trading days in September also have a positive bias.  This of course coincides with the week prior to Labor Day weekend.  The chart below tells how the days leading up to, and the days after Labor Day, do historically.


                          Chart provided courtesy of www.sentimentrader.com

The -1, or Friday before Labor Day, has a strong track record as does -3 which this year would be Wednesday August 31.  The very red -5 day would be today.  If this were a perfect world we would expect at least a temporary bottom either today or tomorrow and a rally the latter half of the week.  It seems like whenever I base a move on this type of data it backfires.  Perhaps in conjunction with the short term oversold conditions and the current excessive put/call ratios, it just may pan out this time.  I will play it by ear and see what happens Today and Tuesday. 

Preferably, I would like to see the S&P 500 come down to the 200-day moving average.  This average has been a strong area for support during the recent bull market pullbacks.  A move below the 200 day ema would cause a pretty good scare; one that may be enough to put sentiment back into panic mode which tends to lead to reversals.


                          Chart provided courtesy of www.decisionpoint.com

That's all for today.  Once again, my thoughts are with those along the Gulf coast.  Let's hope for the best.  Currently 75% F and 25% I fund.  Thanks for reading.