Divot's Account Talk

[Divot]

First post on TSP Talk - comments as of Wed's close:
Risk levels for the overall market remain high (far right):

• Market internals were OK today:

NYSE NASDAQ
Advances 2,024 (60%) 1,787 (56%)
Declines 1,205 (36%) 1,235 (39%)
Unchanged 158 (5%) 153 (5%)
Up Vol* 2,076 (71%) 1,467 (67%)
Down Vol* 808 (28%) 682 (31%)
Unch. Vol* 36 (1%) 25 (1%)
New Hi's 170 116
New Lo's 35 117

• But not as strong as one would expect on a day when all the major indices gained nearly 1%.

The C Fund is still the lowest risk fund, but is clearly in a transition to defense:

• Note that the C Fund is right up against the highs of last week, resulting in short-term outperformance of the others. I'm not thinking this is the time to chase that performance.

All the stock funds still look like they'll test some of the support levels I highlighted yesterday.

Currently 30 G/30 F/40 S.

Thanks for reading!

- Divot

http://tsptrader.blogspot.com

Charts Courtesy of stockcharts.com

[Show-me]

Thank you for posting.

[NyteTracker]

Divot,
Welcome to the Board.
I read your blog, and agree that the S fund has the least risk of the three at the moment.
The 2 month chart is a good snapshot of the disparity from the other two.
http://money.cnn.com/quote/chart/cha...&ma=0&maval=60

Since you love knowledge, you may want to listen to this gentleman.
I recommend the May 13th broadcast, he has some good info.
http://www.manarin.com/radio_show/
Thanks for your input.
GL

[Divot]

Paladin -

Excellent catch of a critical typo. I intended to discuss both of the US stock funds separately in yesterday's post. The S fund is currently the lowest risk fund, not the C. Note the adjacent Bullish Percent chart is of the NASDAQ BP - a good approximation of the small cap Wilshire 4500 that the S fund seeks to follow.

Bullish percentages are not so much a contrarian indicator as a measure of supply & demand. Let me put it this way:

The only way the price of a stock (or index) will increase is for more people to want to buy than want to sell.

Bullish percent charts show the percentage of a group of stocks on a Point & Figure "buy" signal. These buy signals are dirt simple: a higher price than the top of the previous uptrend signals a buy (demand driving the price higher) - lack thereof is a sell signal.

A bullish percent chart graphs this battle between supply and demand. The trend on a bullish percent chart has a very high correlation with the movement of the underlying stocks.

Bullish percents can be effective to chose the timing and targeting of market participation, and are indispensable for risk management.

- Divot
http://tsptrader.blogspot.com

[Divot]

Two roads diverged in a yellow wood...

Bottom line up front - there's no reason to change a fund allocation on the basis of Friday's markets.

Most notable: The longer term Bullish Percents fell - especially the NDX (down 3% Friday!):

Short term indicators for the broad market are not significantly moved to indicate a momentum shift either direction.

Little economic news early next week, but the market environment "feels" like there's plenty of reasons for the market to continue up. It's a pretty strong vote of confidence in our markets when the Chinese government puts $3B into owning the formerly private equity firm Blackstone. Good thing we don't have to make a decision on that "feeling".

Still 30% G, 30% F, and 40% S. I'm going to continue to only partially participate (in the lowest risk area of the market) until the market clearly choses a road to travel. Risk management, folks - risk management.

- Divot
http://tsptrader.blogspot.com

[Divot]

Bottom line up front: Nothing substantially changed in the market risk levels today. I'm moving from 60% bond/40% stock to 60% Small Cap / 20% Fixed Income / 20% Gov't Bonds.

For a little deeper read, consider this. Does anyone know what the current level of the Dow Jones Industrial Average bullish percent (BPDJIA) is?

How about a stratospheric 96.66%? (Click the chart to expand)
This means 29 out of 30 Dow stocks are current on a buy signal... Friends, this is pretty rare. Take a closer look at the chart - this is the highest reading in over five years. The last time the BPDJIA even approached this territory was January 2004. This begs the question... how did the Dow do in 2004? I'm glad you asked:

I've marked a couple key areas with arrows - actually I used the exact same arrow (size, shape, and orientation) copied over. Note the steep push to the intermediate term top in Jan 2004. Gee, does that look familiar to the far right end of the chart?

Here's my point: The market (in general) is still on offense, but risk is high - most of all in the C and I funds. To me, this means stay invested, but be prepared for a correction. There's a lot of ways to play this:

• You could move to 100% in stocks - this is the high stress technique, and rather vulnerable to a sudden and swift correction.
• You could move to 100% in bonds - low stress, but the market COULD continue up for quite a ways.
• You can allocate your retirement account to adjust your risk exposure to the stock market as a whole, and then concentrate the stock funds in the lowest risk sector with the most room to run.

If you have a TSP account, you need to think about how and WHEN you manage your risk.

- Divot
http://tsptrader.blogspot.com

[Birchtree]

If I didn't enjoy risk my heart wouldn't pump - glorious risk.

[Divot]

Emerging Clarity

A brief post this evening, highlighting where NOT to be.

1. Most importantly - the market as a whole is on offense right now. Risk may be high... call it third and long. But that's no reason to punt. All cash/bonds is the wrong place to be - even if I was going to retire next year I wouldn't be all cash right now.
2. The dollar - not always almighty, but currently showing some strength at an area of significant support. (See chart on my blog). When the dollar is strong, the international market's gains are blunted. The major world markets are currently at higher risk levels than US markets, so the risk/reward ratio doesn't point to the I fund (stock symbol EFA) as the place to concentrate now. A little - yeah, that's OK.
3. Now the toss up between the C (S&P 500) and Small Cap fund. I don't think either is a wrong choice. One thing to note:

• • Risk levels are much lower in small cap stocks right now. Try 50ish % versus almost 80% in the S&P. This means that demand has already pushed nearly all the S&P stocks onto buy signals. I can't say whether you're late to the party, but you're not buying ahead of the gains. Put another way, the ONLY way ... let me emphasize that ... the ONLY way for you to make money on an investment is if more people want to buy it after you own it than before you made the purchase.

By the way, some of the short term indicators that were leaning "south" are starting to reverse. If this continues, I'll shift some more from the G/F funds into stocks.

- Divot
http://tsptrader.blogspot.com

[Divot]

Greenspan Who?

Check out the new blog post. Flying without instruments is stupid. Investing without understanding supply & demand is - almost - as dumb. Enjoy!

- Divot
http://tsptrader.blogspot.com

[Spaf]

I agree!
I was IFR in TRS on a GCA into Ft. Hood when we had a fire in the instrument panel! But, there are some things you just can't predict!

[Divot]

Spaf -

TRS... isn't that a weather abbreviation for "This Really Sucks"?

- Divot
http://tsptrader.blogspot.com

[Divot]

DON'T PANIC (written in large, friendly letters)


I'm standing by for the public outcry...

- Divot
http://tsptrader.blogspot.com