Playing the relief

I hope all of you near the Gulf weathered the storm this weekend.  It could have been worse but many people were obviously affected.  Our thoughts and prayers are with you. 

In Friday's comments I said I was prepared to get back into stocks for today, but I did not pull the trigger.  The reason for my timidity was in this statement...

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.

We saw a little oversold rally on Thursday, and Friday was rather flat.  Pretty fearless action considering the size of the storm approaching the coast.  As the storm was downgraded the buyers were more willing to step up.  The lack of nervousness on Friday made me nervous as the market tends to do the opposite of what "the herd" is thinking.

I'll use a poker analogy;  It's not what you think your opponent has that's important.  It's what you think, he thinks, you have. 

The obvious response to the hurricane not hitting Houston and it being downgraded all the way, would be a relief rally on Monday.  But again, as I mentioned in Friday's comments, and RevShark reiterated in his post market commentary Friday, the strength, or lack of weakness, in the market on Thursday and Friday with this bearing down on the gulf coast, tells me people were anticipating the relief by buying early. 

An early rally Monday morning would not be surprising.  Many people are expecting it.  Whether or not it holds for a couple days is the question.  We never like to jump into a rising market only to catch it on the way back down, and that's a very real possibility.

The short term will still provide opportunities to get in and out if you are nimble and somewhat lucky.  Those short term indicators are actually back into neutral territory after Thursday and Friday's action so neither direction has an edge. 

The dollar seems to be surprising a lot of people as it has convincingly broken through the short term down trend and looks as if it will take aim at the early July highs.  This will of course affect the return of the I fund which benefited greatly from the dollar's decline in July and August. 


                            Chart provided courtesy of www.decisionpoint.com

The recent weakness in the market overall has been a good thing.  It is getting us closer to a real bottom and a longer term buying opportunity.  I am continuing to maintain a cautious posture waiting for that opportunity.  Psychology and monetary conditions are still not where we want them to be when looking for that longer term buy signal.  Many a market bottom has come in October.  A little more fear will do the trick. 

If you haven't already read it, RevShark wrote his first "Around the Reef" post market wrap-up commentary for us on Friday.  We are going to try that (a closing summary) and see how it goes.   Unfortunately because of my schedule, I will not be able to put it online until after 7:30 PM ET each weekday.  Still, it might help you plan your strategy for the following day. 

I encourage any serious market strategists to take a look at his website, SharkInvesting.com.  This guy is the real deal.  He has turned many wanna-be-traders into full time professionals.

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