TSP Talk Blog

08/05/11

I am still trying to have some kind of vacation this week but the market action makes that a little difficult. After the 500+ point loss yesterday we are seeing extremes in the indices everywhere and we are certainly due for a rally, but when and how much damage comes first is an unknown.

So what are the pros saying? Since I am on vacation, I am going to borrow RevShark's Afternoon Commentary from yesterday. It will give you a little insight into what a hedge fund manager is thinking during these tumultuous times.

RevShark's Afternoon Commentary from 8/04/11

What is always startling about market pullbacks is how fast we can give back some big gains. We have now given back about eight months of gains in a matter of a couple weeks. The action today was the worst since the bottom in March 2009 and took us back to levels we last saw in November 2010. That is an awful lot of hard work down the drain very quickly. It is also why we trade rather than ‘buy and hold’.

We have had some poor days since the lows in 2009 but nothing of this magnitude. It was just a freefall all day and there was no support at all. The dip buyers were steam rolled and even precious metals were no longer a safe hiding place. It has the feel of the banking crisis in late 2008 and frankly it isn’t hard to draw parallels with the current crisis in Europe that is dragging down one county after the next.

What helped to make today feel even worse is that the bounce yesterday had some hoping that we were close to the end of a very nasty downtrend. Lots of folks were ready to declare that we had seen the lows and, of course, that resulted in some major pain today.

The big question in a market like this is ‘do you try to catch a low’? I don’t believe it is a good approach for most market players but if you are going to try to average into this sort of downtrend you better do it very carefully. I think it is better just to stay out of the way until the market acts better. So what if you don’t catch the bottom print? Many people will rack huge losses trying to accomplish that nearly impossible feat. It just isn’t worth the risk.

One good thing about action like this is that eventually it will set the stage for some great opportunities. The key word here is ‘eventually’. The important thing is to make sure you protect your capital and be in position to aggressively seize the opportunities when they do develop.

Days like today don’t occur that often but they are the nature of the beast. It is because we have poor days like this periodically that we can make so much money when things are better.

- RevShark


Not surprisingly the TSP Talk Sentiment Survey came in at 33% bulls, 58% bears, for a bulls to bears ratio of 0.57 to 1. That is another buy signal so the system's allocation remains 100% S-Fund for next week.

If all of this excitement is not enough, we get the July jobs report Friday morning.

Thanks for reading! Have a great weekend!

Tom Crowley


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