Bullish, but sidelined
by
, 01-06-2009 at 11:05 PM (5748 Views)
I decided to go all cash just prior to Christmas, mainly because the SC rally was pretty anemic at that point and I was going to be out or town for awhile. I felt it was better to be safe until the market returned to normal trading in January when a better read might be discerned about direction. Since the 2nd of January was technically still part of the holiday period, I interpreted its action as a part of holiday trading.
This week the holiday period is over and in two days we've had a pretty decent continuation rally. I might normally be concerned about the short term readings of this market as they are getting stretched, but the downside we experienced last quarter could provide some serious upside action, even if we do eventually test the November lows again. I had been talking about this scenario for awhile prior to going to cash 2 weeks ago and while I feel good that I had the right read, I didn't play it aggressive enough to take full advantage.
Still, I'm pretty sure we'll see some significant downside eventually, but we may need to convert a few more bears first.
The overall market continues to improve, although it still has a long way to go. A full recovery should take months to years to complete.
Today the tone of the market was bullish as the advance/decline line was substantially higher, with most sectors rising and volume about average. Nothing bearish about that.
The VIX is still very high at 38.13, although volatility is nowhere near as crazy as it was over a month ago.
The 3-month T-Bill is yielding .13%, which is up 5 basis points today. This suggests that bonds may be turning, but whether it's longer term or just a short to intermediate term correction remains to be seen. The major ramification here is that as this cash flows out of bonds, much of it will find its way to stocks. Especially as those folks see the markets continue to recover.
Mortgage rates continue to drop as well, which is another major plus for long term market growth.
I can't say I'm comfortable in cash right now as this market grinds higher. I'd feel much better if we could get another significant down leg soon to buy in to. If that happens I'll gladly ride the roller coaster again. The more bulls that get on the current train upward the sooner that down leg should happen.