12/07/11
Stocks were mixed yesterday as we saw a 52-point gain in the Dow and a 1-point gain in the S&P 500, while the Nasdaq, small caps, and the Dow Transportation Index all finished in negative territory.
For the TSP, the C-fund gained added 0.11% yesterday, the S-fund lost 0.23%, the I-fund was down 0.58%, and the F-fund (bonds) fell 0.12%.
I have been expecting a mid-month pause here for stocks after the 8% rally in the S&P 500 off of the November low, similar to the pause we saw in mid-October after the big rally.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I like the looks of the big bull flag (in red) but some indicators are starting to get my attention as they are not as bullish as I'd like to see in December before the typical Santa Clause rally. But a week or two of pullback or a sideways consolidation could take the indicators back into a favorable position when we head into the historically strong final two weeks of the year.
Here's one of the indicators that got my attention, and I really like sentiment indicators that are more than what people are saying, but an indication of what they are doing...
At the end of November, the Rydex Beta Chase Index showed that traders in the Rydex family of mutual funds were twice as likely to trade a "safe" fund than a "risky" one. They were very risk-averse, usually a bullish signal for stocks. But things have changed. They are now 5 times more likely to trade a risky fund than a safe one.
The last time those traders were this "risky" was at the market peak in late October. The time before that was near the peak in April. It is not an exact science, but it's not a great sign for the bulls.
Chart provided courtesy of www.sentimentrader.com
That was a quick reversal in sentiment in just over a week. It hasn't quite hit that 6 times level, so I am still hoping (yes, it's hope at this point) that the market can stay afloat into the end of the year, but I'm not so sure.
Perhaps the mid-month lull (see December seasonality chart) can take this off indicator of these extreme levels and allow stocks to hang in there and give us a positive end to 2011.
The whole situation is quite volatile as expectations are rising that European leaders will announce bold moves at the EU summit this week that tackle the debt crisis. If you're in the stock funds you could be caught by some disappointing news since expectations are high. If you are not in stocks you could miss an explosive rally if the band-aids are big enough to excite investors. Are you more concerned about the possibility of missing a rally, or of being caught in a sell-off? Your answer to that may tell you where you should put your money right now.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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