Yeah, but....

The market is in a tricky situation.  After a weak open yesterday, and a little up and down uncertainty, the market saw a capitulation like bottom after noon ET.  

    

We all knew it was a matter of time before the extreme oversold conditions would be bought, but we still have an enormous hurricane looming and how many buyers will be willing to hold their positions over the weekend?  Last I heard the hurricane is due to hit land late Friday or early Saturday.  That's a lot of uncertainty.

Yeah, but the market rallied last time a hurricane hit land.  True, but this would hit a second area of oil rigs and refineries and the word is $4 or $5 a gallon for gasoline is a real possibility. 

Yeah, but the recent market drop has already priced that in.  Possibly, but has it also priced in the possibility of a second major U.S. city being taken to its knees?  That's a lot of economic damage with the possibility of loss of income, property, earnings, jobs, not to mention lives. 

OK, so we should just stay out of the market until we know more, right?

Yeah, but if we do that we could miss a big rally with TSP being a day or two behind the market.  True, but what is more important to you, catching a possible rally or preserving your capital for a higher odds play?

Yeah, but...   There are no right or wrong answers to these questions.  Each individual is in their own situation and should have an idea of how much risk they are willing to take with their retirement account.  I have an idea of what I would do but I also have to think about the people who follow the transactions of this website.  It has me leaning toward the conservative side. 

The short term indicators and trends are leaning the other way, telling us the market is at a high odds buy point.  But the indicators don't tell the market what to do.  They just tell us what the market is doing and put the odds in our favor when making a decision.  Here are some:

Monday, Tuesday and Wednesday saw three consecutive days of at least 1,000 more declining stocks than advancing stocks on the NYSE.  There have been 13 of those occurrences since 1997.  Ten days after all of them, the S&P was positive 12 times for an average of +3.3%.  The one negative return was -0.7%.  The average maximum drawdown (looking at closes only, not intraday lows) over the next two weeks was only -0.1% while the average maximum gain was +4.9%.  That's a pretty high odds buy signal. 

In the last 40 years there have been many market lows made after we had 3 consecutive days of stocks on the NYSE down 2 to 1 to stocks up as we saw this week.  But it also preceded some major market meltdowns.  The odds don't favor the meltdown but it's something to keep in mind. 

The fact that the S&P 500 earnings yield is still over 30% higher than the 10 year treasury bond yield gives us a safe enough cushion to believe we will not see a major melt down.  But even a minor meltdown will hurt.

 

Bottom line, the odds favor we will end next week higher than this week.  I don't know if the market is out of the water completely but at least for the short term things are shaping up.  If we test Thursday's lows on Friday morning I may put some money into the stock funds.  I'm not willing to go 100% just yet but maybe 25% to 50%.  We'll see what happens. 

Yeah, but it's the last week of September... ugh!  The one catch to all this is if too many people think we will get a post hurricane rally, the less likely it will come.  People buying Friday might be caught on the wrong side.

If I make a move I will send out the email alert and post the transaction on the message board in this forum.

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


Administrative note:  I had mentioned a couple of weeks ago that there are some exciting changes coming to TSP Talk.  Possibly as soon as next week, we will have a second daily market commentary columnist. 

To serious traders and market timers this gentleman needs no introduction.  Soon you will know why.  James "RevShark" De Porre is a pioneer in the online trading world.  I have been a fan of his market commentary for close to a decade.  He is currently the president of an Investment Advisory firm specializing in actively managed, separate accounts. 

Mr. De Porre will be writing a daily market summary for us called "Around the Reef".  We are still working on some last minute details but this is a done deal.  I am very excited to have James join us as he is one of the most talented and respected voices in the trading world.  Stay tuned for more information.