08/11/11
Normally a 500-point day in the Dow would be big news, but we're started to get used to the 400 to 600 point moves. Volatility will remain in play but I am seeing a light at the end of the tunnel.
For the TSP, the C-fund fell 4.37% yesterday, the S-fund lost 3.96%, the I-fund dropped 6.20%, and the F-fund (bonds) gained 0.30%.
Yesterday the S&P 500 lost virtually all of Tuesday's big gains, but taking a more optimistic look at the action shows that the low was near Monday's low, which was above Tuesday's low. We could be seeing a little consolidation here and the 1100 area is the key. It will be nice if the Monday and Wednesday lows hold as well, but a consolidation will still be valid as long as 1100 holds.
When a market is trying to form a bottom, we usually see either a "V" bottom, a "W" bottom that double tests the low, or a consolidation as we saw in some of the more mild pullbacks produced over the last year.
We have a couple of sentiment type indicators to show today, and not surprisingly we are seeing a lot of bearishness out there. These two charts below tell us what traders / investors are actually doing with their money, as opposed to a sentiment survey which tells us what they say they are doing with their money. There's a little difference.
The first chart shows the 10-day moving average of the put/call ratios, and the dumb money ratios (CBOE and Equity) are showing that extreme bearishness. The CBOE ratio is as low (bearish) as it has been since the 2008 bear market. Since that is a contrarian indicator, it is more of a bullish sign for stocks than bearish, but it isn't an instant gratification indicator.
The smart money OEX put/call ratio (green graph on bottom above) is moving up to a more bullish position. We know that the smart money is more inclined to buy while the market is going down, as opposed to the selling done by the dumb money.
The Rydex Cash Flow Ratio shows that investors are dumping money into bearish mutual funds and / or cash, and leaving the bullish funds. Investors in this indicator have not been this bearish since the lows of last summer's correction.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds have been unbelievable lately. After two head and shoulders breakdowns, each blowing past their H&S downside targets, the yield has moved down into what I would call a panic level. Remember, bond yields go down when bond prices (F-fund) go up, and bonds are being bought as an alternative to stocks, but it seems beyond rational now.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The yield is nearing the 2008 lows during the financial crisis, and those lows are the lowest I can find in the charts (going back over 30-years.)
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This is a troubling time for the market and I understand being cautious, but the ducks are lining up for an imminent rally in my opinion. Sure, in the short run we could see more panic selling, but fading emotional moves tends to pay off.
Take a look at the August seasonality chart below. Seasonality is not on my list of the best indicators in a market environment like this, but you can see that the historical August weakness subsides beginning on the 10th trading day of the month, and we are heading right into that time of the month.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
Normally a 500-point day in the Dow would be big news, but we're started to get used to the 400 to 600 point moves. Volatility will remain in play but I am seeing a light at the end of the tunnel.
For the TSP, the C-fund fell 4.37% yesterday, the S-fund lost 3.96%, the I-fund dropped 6.20%, and the F-fund (bonds) gained 0.30%.
Yesterday the S&P 500 lost virtually all of Tuesday's big gains, but taking a more optimistic look at the action shows that the low was near Monday's low, which was above Tuesday's low. We could be seeing a little consolidation here and the 1100 area is the key. It will be nice if the Monday and Wednesday lows hold as well, but a consolidation will still be valid as long as 1100 holds.
When a market is trying to form a bottom, we usually see either a "V" bottom, a "W" bottom that double tests the low, or a consolidation as we saw in some of the more mild pullbacks produced over the last year.
We have a couple of sentiment type indicators to show today, and not surprisingly we are seeing a lot of bearishness out there. These two charts below tell us what traders / investors are actually doing with their money, as opposed to a sentiment survey which tells us what they say they are doing with their money. There's a little difference.
The first chart shows the 10-day moving average of the put/call ratios, and the dumb money ratios (CBOE and Equity) are showing that extreme bearishness. The CBOE ratio is as low (bearish) as it has been since the 2008 bear market. Since that is a contrarian indicator, it is more of a bullish sign for stocks than bearish, but it isn't an instant gratification indicator.
The smart money OEX put/call ratio (green graph on bottom above) is moving up to a more bullish position. We know that the smart money is more inclined to buy while the market is going down, as opposed to the selling done by the dumb money.
The Rydex Cash Flow Ratio shows that investors are dumping money into bearish mutual funds and / or cash, and leaving the bullish funds. Investors in this indicator have not been this bearish since the lows of last summer's correction.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds have been unbelievable lately. After two head and shoulders breakdowns, each blowing past their H&S downside targets, the yield has moved down into what I would call a panic level. Remember, bond yields go down when bond prices (F-fund) go up, and bonds are being bought as an alternative to stocks, but it seems beyond rational now.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The yield is nearing the 2008 lows during the financial crisis, and those lows are the lowest I can find in the charts (going back over 30-years.)
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This is a troubling time for the market and I understand being cautious, but the ducks are lining up for an imminent rally in my opinion. Sure, in the short run we could see more panic selling, but fading emotional moves tends to pay off.
Take a look at the August seasonality chart below. Seasonality is not on my list of the best indicators in a market environment like this, but you can see that the historical August weakness subsides beginning on the 10th trading day of the month, and we are heading right into that time of the month.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
