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Coolhand's Market Analysis

Caution Level Rises

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Caution is rising. There isn't nearly as many TSPers jumping into this market at support as there was a month ago. I suspect the fast up and down action along with the fact that this is a bear market has many (including me) gauging risk as too high. Here's this week's charts:

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The Top 50 dropped their stock exposure another 3.9% this week and are holding a total stock allocation of 15.82%. How's that for bearish. Last week they dropped their stock exposure by 13.74%, and that was a good move given the significant losses that were posted among the major averages.

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The herd dropped their total stock allocation for third straight week by 2.18% for a total stock allocation of 47.43%.

So we're looking lower overall. And historically speaking, October has served up some whoppers (crashes in 1929, 1987, and a 554 point drop in 1997 to name a few). But October has also seen bear markets turn the corner and begin bull markets as well. My expectation is for the market to take out the August lows (perhaps seeing the S&P fall to the 1040 range) sometime this month, and then I would not be surprised to see another bear market rally into the end of the year.

The Seven Sentinels are currently in a sell condition and I'll be looking for NAMO and NYMO to fall to much lower levels before a recovery happens. But whatever the market does, I'm sure it will still make it challenging for us to pick our spot. My personal plan is to do some phased buying and not try to pick "the" bottom. That means I'm willing to buy and hold to some extent.

Futures are lower at the moment, although not overly so. Some traders are looking for follow through action to the downside to begin the new week. If it happens and we take out the August lows, things could start getting interesting.

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