Taken from our 4/03/09 daily market commentary:
Stocks jumped out of the gate with a fury Thursday and, except for a little selling at the end of the day taking the indices off their highs, they basically held those early gains all day. The Dow was up over 300 at one point, but the bulls probably won't complain about the +216 gain they ended up with.
We have talked about them changing the Mark to Market accounting rule a few times and the market seems to have been rallying because of the possible change, so I am a little surprised that we didn't get more of a "sell the news" reaction once the announcement was made. I guess it is a pretty big deal and investors are happy that they know it is going to be a reality.
The S&P 500 has been on fire, breaking through resistance levels lately, but is trading at the upper end of the declining channel. The 200-day moving average is hanging above just waiting to be tagged, but will the index have enough strength to get there during this push?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Once we had that 7% up day back in early March to start of this current rally, I felt like it was too much, and too late, to jump into during a bear market rally. That was obviously wrong, but anyone looking to buy now is really challenging the odds. The fear of missing the rally is similar to the fear an investor has when a market is in free fall. I'd suggest patience at this point.
I can't deny that things are starting to look pretty good, but when things look their best, sometimes it could indicate that it is time for a break. Just like when things appear their worst, ala the 70% bearish reading in the AAII Sentiment Survey in early March, things tend to get better.
In hindsight, that 70% bearish reading we saw in early March was the signal we should have taken, but it's always tough to pull the trigger in a market that is moving down relentlessly. And, like I said, the first move higher was 7% and unfortunately I felt it was too late to act.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Since then, the AAII has come back toward a much more neutral reading with the 1.16 to 1 bulls (43%) to bears (37%) ratio.
This week's TSP Talk Sentiment Survey came in at a 1.40 to 1 bulls (49%) to bears (35%) ratio, which keeps that system on a sell signal for next week. That is a little too bullish for a bear market. The system is down 0.33% for 2009.
The put/call ratios of the dumb money (CBOE and Equity) have pulled back giving a little fuel to the rally, but are still at levels that should make the current rally a little tired. The OEX put/call ratio, which I used to consider the smart money, has been more inconsistent as they were most bullish close to the peak in February. I started to stop trusting it. Now it is moving down, which used to be a bearish sign for stocks, but I'm not so sure anymore.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
It may be that the smart money is turning more toward ETF's to do their hedging and leveraging, rather than options.
I had another indicator give us a little sell signal flicker yesterday. It's been a long time, but I had my first "hate mail" in quite a while. They used to be pretty regular but it quieted down as our regular readers seem to understand how humbling the market can be, and that no one person has all the answers, nor can anyone always be right all the time. It's usually the newbies that have unreasonable expectations, but I can understand the frustration of missing a 25% rally. This hate mail indicator is a contrarian indicator as they usually start to roll in just before the market starts to turn my way.
The NYSE overbought/oversold indicator is back in overbought territory, and a strong market will ignore this, while a weak one should react negatively.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
With today's jobs report and earnings season getting ready to kick off, the test of this overbought condition shouldn't take long to materialize.
We are actually getting buy and sell signals flying all over the place lately. This can be confusing but could mean there is a change occurring - like perhaps the bear market may be waning, or at least an intermediate change could be coming. I'm still leaning toward playing defense but I am going to try to keep an open mind to the possibility.
And here's the interesting part, at least to me. I am always aware of my own sentiment, realizing that it is usually wrong at market extremes, just like the rest of the dumb money. But I try to understand that and act accordingly. Admittedly, I did not do that in early March when the market looked so bad, that I thought the 70% bearish percentage may not be enough, and that the market could continue to fall. It was my own personal contrarian buy signal, but I didn't act on it.
Now, I am feeling that twinge of bullishness stirring inside of me that I assume is going to be wrong as well. It is more likely the dumb money in me, and it is likely an indication that the rally is about over. If you can't trust yourself, who can you trust? The answer is, trust your instincts to be wrong at extremes, and be able to act on it. That's why market timing can be so tough.
Thanks for reading. Have a great weekend and we'll see you on Monday!
Stocks jumped out of the gate with a fury Thursday and, except for a little selling at the end of the day taking the indices off their highs, they basically held those early gains all day. The Dow was up over 300 at one point, but the bulls probably won't complain about the +216 gain they ended up with.
We have talked about them changing the Mark to Market accounting rule a few times and the market seems to have been rallying because of the possible change, so I am a little surprised that we didn't get more of a "sell the news" reaction once the announcement was made. I guess it is a pretty big deal and investors are happy that they know it is going to be a reality.
The S&P 500 has been on fire, breaking through resistance levels lately, but is trading at the upper end of the declining channel. The 200-day moving average is hanging above just waiting to be tagged, but will the index have enough strength to get there during this push?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Once we had that 7% up day back in early March to start of this current rally, I felt like it was too much, and too late, to jump into during a bear market rally. That was obviously wrong, but anyone looking to buy now is really challenging the odds. The fear of missing the rally is similar to the fear an investor has when a market is in free fall. I'd suggest patience at this point.
I can't deny that things are starting to look pretty good, but when things look their best, sometimes it could indicate that it is time for a break. Just like when things appear their worst, ala the 70% bearish reading in the AAII Sentiment Survey in early March, things tend to get better.
In hindsight, that 70% bearish reading we saw in early March was the signal we should have taken, but it's always tough to pull the trigger in a market that is moving down relentlessly. And, like I said, the first move higher was 7% and unfortunately I felt it was too late to act.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Since then, the AAII has come back toward a much more neutral reading with the 1.16 to 1 bulls (43%) to bears (37%) ratio.
This week's TSP Talk Sentiment Survey came in at a 1.40 to 1 bulls (49%) to bears (35%) ratio, which keeps that system on a sell signal for next week. That is a little too bullish for a bear market. The system is down 0.33% for 2009.
The put/call ratios of the dumb money (CBOE and Equity) have pulled back giving a little fuel to the rally, but are still at levels that should make the current rally a little tired. The OEX put/call ratio, which I used to consider the smart money, has been more inconsistent as they were most bullish close to the peak in February. I started to stop trusting it. Now it is moving down, which used to be a bearish sign for stocks, but I'm not so sure anymore.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
It may be that the smart money is turning more toward ETF's to do their hedging and leveraging, rather than options.
I had another indicator give us a little sell signal flicker yesterday. It's been a long time, but I had my first "hate mail" in quite a while. They used to be pretty regular but it quieted down as our regular readers seem to understand how humbling the market can be, and that no one person has all the answers, nor can anyone always be right all the time. It's usually the newbies that have unreasonable expectations, but I can understand the frustration of missing a 25% rally. This hate mail indicator is a contrarian indicator as they usually start to roll in just before the market starts to turn my way.
The NYSE overbought/oversold indicator is back in overbought territory, and a strong market will ignore this, while a weak one should react negatively.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
With today's jobs report and earnings season getting ready to kick off, the test of this overbought condition shouldn't take long to materialize.
We are actually getting buy and sell signals flying all over the place lately. This can be confusing but could mean there is a change occurring - like perhaps the bear market may be waning, or at least an intermediate change could be coming. I'm still leaning toward playing defense but I am going to try to keep an open mind to the possibility.
And here's the interesting part, at least to me. I am always aware of my own sentiment, realizing that it is usually wrong at market extremes, just like the rest of the dumb money. But I try to understand that and act accordingly. Admittedly, I did not do that in early March when the market looked so bad, that I thought the 70% bearish percentage may not be enough, and that the market could continue to fall. It was my own personal contrarian buy signal, but I didn't act on it.
Now, I am feeling that twinge of bullishness stirring inside of me that I assume is going to be wrong as well. It is more likely the dumb money in me, and it is likely an indication that the rally is about over. If you can't trust yourself, who can you trust? The answer is, trust your instincts to be wrong at extremes, and be able to act on it. That's why market timing can be so tough.
Thanks for reading. Have a great weekend and we'll see you on Monday!
