Yesterday left both bulls and bears with their glasses half full.

Monday morning's rally wasn't much of a surprise after hurricane Rita came and went with much less damage than expected.  But Monday morning emotional money action doesn't tend to hold.  The early 90 point rally in the Dow completely disappeared, actually turning negative for a while, before a late move put it back in the black, up 24.

So the bulls ended the day on a positive note but things could have been better, and the bears were OK with a big gain turning to a only modest one.  That is mainly talking about the larger stocks as the C fund gained only .01 but the small caps and international stock funds each had a big day.  

Looking forward, so many things are lining up for the market.  I have little doubt that before year's end I will be heavily invested in the stock funds once again, looking for a major longer term rally in stocks.  The question will be how do you want to handle your account until that happens?

My thinking is we will see oversold rallies, and we will see another push down within the next several weeks.  The intermediate term indicators just don't appear ready for that big rally.  So I'm leaning toward being cautious but there should be playable rallies.  I'm hoping for some weakness again later this weak to take advantage of another oversold condition.  But it will be a temporary move as I believe any rallies will be sold again as we head into the next FOMC meeting in early November for another interest rate... hike?  I can't see the market embracing that.

Also keep in mind that we are heading into earnings warning season and we are likely to hear many companies over the next few weeks use the hurricanes as an excuse to clean up their balance sheets. 

On the bullish end I am seeing many indications that the herd is getting nervous.  Odd lot short sales (bets that stocks will go down) and short sales by the public in general are at very high levels.  These odd lot traders, those who trade fewer than 100 shares at a time, are typical wrong at market tops and bottoms.  They are very bearish right now. 

Also, that 10-day OEX put/call ratio (a smart money indicator) has almost completely reversed.  Those "smart" traders were very bearish a couple of weeks ago and that indicator is neutral and moving toward a bullish level.  Conversely, the "less than smart" money has raised more cash and/or added to bearish mutual funds at a higher rate than bullish that of bullish fund.  More indications that a rally may be close at hand.

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