It's never easy, is it?

When you invest for the long term, a buy and hold - diversified style, days and weeks as we have seen over the past month or so don't really mean much.  Five or ten years from now this volatility will seem very insignificant - a blip on the radar screen.  But for those who try to time the market, this action could be either very rewarding or very demoralizing.

If you are lucky enough to be on the correct side of the market as it fluctuates up and down as we've seen recently, you can really pad those yearly returns catching the gains and avoiding the losses.  If you are on the sidelines and have a hard time resisting the market gains, you may jump in just as a pullback arrives.  Then when the market falls you might decide to get out only to see it rally again.  This can be very frustrating causing you to be very uncertain about what to do next.

This is the main reason why I use indicators religiously.  It can still be frustrating being on the wrong side but there are fewer uncertain periods.  You are following your indicators with a specific reason for your action.  It tends to give you more comfort being where you are.

The 10-day moving average of the ARMS index is back into overbought territory.  Once again it gave a good buy signal as it neared the 1.30 area just before the holiday weekend.  As you can see below it approached the .90 area which tells us the market is tiring.


 
                           Chart provided courtesy of www.decisionpoint.com

I won't show you the chart again, but the 10-day moving average of the OEX put/call ratio (a smart money indicator) is at its highest reading in several years.  These OEX options traders tend to smell trouble before the rest of the traders / investors.  They are now more bearish, based on this indicator, than they have been in years.  This tells me being on the sidelines for at least a couple of weeks would be the wise move.

The dollar has rallied off its lows and is now facing overhead resistance.  The short term trend and the path of least resistance is still down.  A move higher at this point would be a solid show of strength and a possible resumption of the longer term uptrend.  This would be a negative for the I fund.


                            Chart provided courtesy of www.decisionpoint.com

I have mentioned many times that my market instincts are not great.  I rely almost exclusively on my indicators to decide what to do.  But this latest oversold rally, one in which I was in on early but exited prematurely, seems to have come too far.  The last two weeks seemed a bit irrational to me.  The outrageous oil and gasoline prices, rising interest rates, and the inevitable economic fallout from Katrina will eventually take a toll on earnings.  Best Buy kicked off earnings warnings season yesterday which could be to blame for some of the damage done to the indices.  If companies are having any trouble this is a perfect excuse for them to get the bad news out.  "We would be doing great if it weren't for...."

For that reason I think we could get that last push down.  Maybe not today, maybe not this week, but certainly soon.  A push down that will finally bring about a fear and pain that normally accompanies a long term bottom.      

That's all for today.  Currently 100% G fund.  Thanks for reading.