TSP Talk Blog

The market's action lately has me close to the peak of fear. I know that when my level of fear rises, I should be prepared to think like a contrarian because my instincts, like the rest of the "dumb money", are usually wrong near market extremes.

The S&P 500 is playing with that 840 area that is basically a make or break level for the short-term, and possibly the intermediate-term. If it holds above it, we could see a decent rally. If it breaks below, it could be "look out below!"

Yesterday's low was 826, breaking below that dreaded 840 level, but like last Thursday, it managed to climb above it by the close. The chart looks terrible right now, but with the market being so oversold, near support, and bearish sentiment so high, most traders would look to buy here - if this was a normal market. Of course it has not been normal, so conventional thinking may not work.


Chart provided courtesy of www.decisionpoint.com

I am also aware of the overly bullish (if you can believe it) Rydex Traders that we talked about on Monday. This is a big concern.

The dilemma is that we are due for a bounce and we are entering a strong seasonal period. The problem is that the market conditions are quite poor, and if we break the lows on a closing basis, things can go south very quickly.

The following information is just FYI as we head into the holiday season: The current bear market started at the market peak in October of 2007. By late November of last year, after a 10% drop from the highs, the market started a strong rally that lasted about two weeks. The market bottomed on the Monday after Thanksgiving weekend (C below). The Friday after Thanksgiving (B), which is historically quite positive, was a very strong day, while the Wednesday before (A), also an historically positive day, saw a large decline.


Chart provided courtesy of www.decisionpoint.com

Here's the seasonality chart surrounding the Thanksgiving Day from 1950 to 2004.


Chart provided courtesy of www.sentimentrader.com

Again, that was just FYI that may or may not help you make your decisions.

I have been fully invested in the stock funds this week in an attempt to catch an oversold rally during options expiration week. It hasn't started too well although we did have a positive day yesterday. I'm hoping that the late strength yesterday was part of a "turnaround Tuesday" that could give us another day or two of upside action. Depending on what happens this morning, I may use an interfund transfer to get myself out again, but I won't be able to make another transaction until December and I am a little concerned that I could miss a Thanksgiving rally. The question is, am I more afraid of missing gains, or being caught in another whirlpool down?

That's is something only I can answer, and something each of you will have to decide for yourself as well. This is a tough time for market timers. Good luck!

That's all for today. Thanks for reading! See you back here tomorrow.