Dow drops 102 points. Don’t panic

“Momentum always lasts longer than you think it will.  I’ve written this many times but it can still be difficult to believe that the market isn’t going to be reasonable and do what we think it should.  After all we’ve had a huge run and it makes sense that we should take a rest but if you have been trying to time a market top you likely have cost yourself some profits.

What has been most interesting about the market lately has been how small caps, speculative names and momentum stocks have showed renewal vigor recently.  These stocks corrected deeply for a couple months while the S&P500 and DJIA covered up the action but many have never made it back to their highs and now the bears are telling us the head-and-shoulder patterns are forming.

If you want to be a growly grizzly it is very easy to find good reasons to do so but time and again the best way to deal with this market has been to stay focused on the price action and to not turn bearish until there is some actual weakness. If you are overly anticipatory in looking for a top you have cost yourself quite a bit.

It definitely is not easy to deal with the market at this point. The buy-and-hold bulls will continue to celebrate but if you have capital you are trying to put to work it is extremely difficult.  The vast majority of stocks are extended mostly on light volume and you have to have a high level of faith that we will not have some normal profit taking soon.  On the other hand it is suicidal to try to short this market.

The best thing you can do is stay selective with new buys and manage everything fairly tightly.  One of the most frustrating things about this market is that if you set stops too tight you can get jiggled out and be left on the sidelines when we have a good finish like we did yesterday.  It is very easy to make premature sales lately and I have made my share.”

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The day’s action left us with the following signals: C-Buy, S-Buy, I-Buy, F-Neutral. We are still invested at 08/G, 92/F. Our allocation is now -3.24% on the year not including today’s results. Here are the latest posted results:

06/10/14
Fund	G Fund	F Fund	C Fund	S Fund	I Fund
Price	14.4362	16.2974	25.4399	35.1455	26.8318
$ Change	0.0009	-0.0167	-0.0059	-0.0734	-0.0203
% Change day	+0.01%	-0.10%	-0.02%	-0.21%	-0.08%
% Change week	+0.02%	-0.16%	+0.08%	+0.25%	-0.02%
% Change month	+0.06%	-0.66%	+1.48%	+2.65%	+0.89%
% Change year	+1.04%	+3.53%	+6.55%	+4.38%	+4.96%
	L INC	L 2020	L 2030	L 2040	L 2050
Price	17.1843	22.6014	24.4829	26.028	14.7975
$ Change	-0.0025	-0.0086	-0.0128	-0.0164	-0.0103
% Change day	-0.01%	-0.04%	-0.05%	-0.06%	-0.07%
% Change week	+0.02%	+0.04%	+0.05%	+0.06%	+0.07%
% Change month	+0.31%	+0.77%	+0.99%	+1.17%	+1.32%
% Change year	+2.19%	+3.70%	+4.36%	+4.81%	+5.22%

There was a little routine profit taking in the equity funds today, but nothing serious to worry about just yet. I am staying clear of stocks for now because I firmly believe that the Dow and S&P 500 will correct. I will admit that I have been wrong up until now. Nevertheless, I will wait until I get a sell signal in bonds or the above mentioned correction takes place. This year is far from over. What’s that old saying? ”I will just go on being wrong until I’m right!” We made a move into precious metals and commodities on the street which allowed us to make some money without exposing ourselves to equities. I wish we had options like that in TSP. It would make life so much easier! Here’s what the C Fund looked like today:

The S&P 500 continues to give a solid buy signal. It has pulled back from resistance just a little, but nothing that I would consider more than a little consolidation at this time. All the indicators are showing positive crossovers which are buy signals. There’s really no concern with the chart other than that the PMO (as I noted yesterday) has reached an area of resistance which means that we will be more prone for a pullback at this time. It should also be noted that the ascending price channel is pretty steep. The current dip may just bring the angle of ascension to a more sustainable level. As the rule goes, the greater the level of ascension, the more volatile the pullback. If you want to see good examples of that just look at some penny stock charts. The day traders love them.