Buy the dip or will things get worse?
That seems to be what is on most investors' and traders' minds at the moment. It feels as if the market has been going straight up the past several weeks, and the bulls have been justifiably giddy . But giddy is usually seen closer to a top than at a buy the dip pullback.
Small time options traders, those buying 10 contracts or fewer, are a good tell for the market. They are consistently wrong at market extremes. Right now these small options traders are buying calls (bets that the market will rally) at a 3 to 1 ratio over puts (bets that the market will go down). That ratio is the highest we've seen all year. The last time it was this high was in late December of 2004 and the Dow dropped about 500 points shortly thereafter. Except for the one last push in March, the Dow has been down ever since.
Speaking of the Dow, I was looking at what has transpired over the last several weeks since I've gone 100% G fund. I admit I am picking this chart for convenience as it makes my case look a lot better. By June 15th I had finished moving my entire TSP account into the G fund. Initially the call made me look like a genius as the market sold off sharply, but the ever humbling market quickly took me off of my high horse. I still don't really understand why the rally was so strong after the July 7th London attack but it turned out to be a nice trading opportunity for those who took advantage. But look what has really happened to the Dow since mid-June...
Chart provided courtesy of www.decisionpoint.com
Small cap stocks faired much better but my point for getting out in June was of course that my indicators were telling me to. They were saying that the intermediate term was showing signs of fatigue and that the odds were favoring a pullback. I thought the upside was limited and the next bigger move could be down. The yellow flags were out.
Of course since then we had that deep immediate gratification pullback followed by a quick recovery and dose of humility. And now we are basically back to the mid-June prices. So again the question on everyone's mind is, do we buy weakness or get / stay out of stocks? My guess is that it is still time to be cautious but of course the market won't make it easy for us. We will likely see rallies here and there to try to lure us back to the bull camp (with those small options traders). No one likes to miss the upside of a rally but you have to ask yourself how much risk you are willing to take at this time.
On Friday, for the first time in a long time, the indices failed to rally from short term oversold conditions. This increases the chances that the next pullback may be more serious.
That's all for today. Currently 100% G fund. Thanks for reading.
That seems to be what is on most investors' and traders' minds at the moment. It feels as if the market has been going straight up the past several weeks, and the bulls have been justifiably giddy . But giddy is usually seen closer to a top than at a buy the dip pullback.
Small time options traders, those buying 10 contracts or fewer, are a good tell for the market. They are consistently wrong at market extremes. Right now these small options traders are buying calls (bets that the market will rally) at a 3 to 1 ratio over puts (bets that the market will go down). That ratio is the highest we've seen all year. The last time it was this high was in late December of 2004 and the Dow dropped about 500 points shortly thereafter. Except for the one last push in March, the Dow has been down ever since.
Speaking of the Dow, I was looking at what has transpired over the last several weeks since I've gone 100% G fund. I admit I am picking this chart for convenience as it makes my case look a lot better. By June 15th I had finished moving my entire TSP account into the G fund. Initially the call made me look like a genius as the market sold off sharply, but the ever humbling market quickly took me off of my high horse. I still don't really understand why the rally was so strong after the July 7th London attack but it turned out to be a nice trading opportunity for those who took advantage. But look what has really happened to the Dow since mid-June...
Chart provided courtesy of www.decisionpoint.com
Small cap stocks faired much better but my point for getting out in June was of course that my indicators were telling me to. They were saying that the intermediate term was showing signs of fatigue and that the odds were favoring a pullback. I thought the upside was limited and the next bigger move could be down. The yellow flags were out.
Of course since then we had that deep immediate gratification pullback followed by a quick recovery and dose of humility. And now we are basically back to the mid-June prices. So again the question on everyone's mind is, do we buy weakness or get / stay out of stocks? My guess is that it is still time to be cautious but of course the market won't make it easy for us. We will likely see rallies here and there to try to lure us back to the bull camp (with those small options traders). No one likes to miss the upside of a rally but you have to ask yourself how much risk you are willing to take at this time.
On Friday, for the first time in a long time, the indices failed to rally from short term oversold conditions. This increases the chances that the next pullback may be more serious.
That's all for today. Currently 100% G fund. Thanks for reading.
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