Whatever bothered the market on Tuesday seemed to have been forgotten on Wednesday as stocks rallied sharply almost completely regaining all of Tuesday's losses.

The TSP Talk website was moved to an upgraded server the other night and almost everything that could go wrong, did go wrong.  For that reason I will be working on some of the bugs and give the floor to Trader Fred today.  Here's Fred:

UPDATE: Close of Business Wednesday, August 29, 2007     

The TSP Trader system is in the bond market. Submodel KF is in the F Fund, and the trade continues. The trade has a profit of slightly more than one percent. A TSP Trader design goal is for each trade to exit the market with at least a one percent profit.  The trade will continue in the F Fund until Submodel KF gets a sell signal or the stop loss is hit. The stop loss for this trade is when the F Fund closes at or below $11.31.  Information on the historical back testing performance of all submodels is available on the TSP Trader system stop loss web page. Check in regularly and see how the TSP Trader system is doing.

The first image shows how the stock market behaves between TSP Trader system trades. When the TSP Trader system is not in the C or I or S Funds that is considered being between trades. The Loss—Gain value (horizontal axis) is less negative (heading East), but remains well into the Loss region (horizontal axis—left side). The market weakness value (vertical axis) was unchanged.  These two factors resulted in slight movement to the east, not a desirable direction if one is looking for the next stock market entry point for the TSP Trader system C, S, I Fund allocation. It appears the lower weakness boundary of minus three remains soundly breeched (dotted green line). This is unusual and quite worrisome stock market behavior.

        
                                      More on the C Fund Weakness-Strength Chart

 The overall market strength (blue line) has leveled out well into the region of market weakness (below the dotted green line). When the blue line is flat or headed downward, it means any gains in the C Fund will be difficult to retain. Under normal market conditions, this chart tends to be a leading indicator of the market’s behavior by a week or more. The C Fund (black line) scale is on the right.

                        

The table below lists the six biggest declines in the S&P 500 Index from 1987 through February of this year. The historical average point loss was around minus five hundred and fifty points.

The historical average recovery time for the S&P 500 Index was sixteen days. This means the historical patterns used for back testing the TSP Trader submodels becomes suspect for at least a month after a large point decline in the S&P 500 Index. The image below chronicles the S&P 500 Index decline from last February.

The bottom of the dotted red curve is where the market oscillations caused by the February four hundred point decline were at their worst. The first important point is that the lowest point decline in the S&P 500 Index (February 27^th) happened a week and half before the maximum oscillation date (March 9^th). The second important point is that from the bottom of the red curve it took thirteen market days to reach the dotted green line. Market stability is re-established when the black line crosses through and continues above the dotted green line. The historical average recovery time for the six largest S&P 500 Index point declines (see table above) was sixteen days. With the February recover taking thirteen days, the above image represents what is typical for a large S&P 500 Index point decline and recovery. 

The chart below is of the same type as the one above, except it is for the current market decline (July-August, 2007).

                

The similarity of the July & August chart to the above February & March chart is reassuring, as essentially same market pattern exists in both.  The dotted red curve indicating when stability might be restored shows that will most probably happen near the end of September. The February & March chart and accompanying text discusses the implications of achieving a new market low and then regaining market stability, which is when the black diamonds actually cross the dotted green line. Until then, market oscillations will continue to distort the mathematics of the historically based TSP Trader submodels, although less so as stability is approached. The stop loss design feature of the TSP Trader system is now its most important feature. Caution and patience are vital for one’s investment decisions until market stability is restored.

The summed NYSE volume vs. C Fund Loss-Gain chart is normally used to watch for the market pile up and release pattern. However, this is the longest period for this chart to exist between trades and a new market pattern is observed (green lines). This chart is a modified version of the C Fund Weakness-Strength chart (first chart above) so it has inherited many of its functions. In this case, trending to the Northeast is observed. This is good as it indicates a general increase in market gain and strengthening NYSE volume. This new observation for this chart is in general agreement with the beginnings of the stability recovery discussed above (red dotted line).

                

The possibility always exists a submodel trade may not be profitable. Investing in the stock market is gambling, as past performance does not guarantee future performance.

-- Trader Fred

The EbbChart System continues to time the market beautifully.  It was in the G-fund for Tuesday's sell-off and was back in the I-fund for yesterday's rally.  That makes the 2007 return an astonishing +21%.  Find out where the ebbchart system page goes next.

Volatility continues to keep us on our toes and where the roulette wheel stops today, nobody know.  I'll remind you that Friday's pre-holiday bias is very positive, but in this market environment, there are no guarantees.


                                   Chart provided courtesy of www.sentimentrader.com

That's all for today.   I am currently 100% F fund.  See you tomorrow.

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