Saturday, August 02, 2008

No change and no trend

There's not much to say at the end of the week, except that little has changed. The S&P 500 has been pretty flat, and hasn't yet formed any concrete price trend to follow.

The market indicators are still mixed. Money flow and breadth are both bullish now. Sentiment is moderately optimistic, which is bearish for the market. The lack of a double bottom in the chart up to this point hurts the chances for a sustained rally.

So I'm still in cash. Were I to anticipate anything at this point, it would be the beginning of the next downturn. If and when the indicators give a consistent topping signal, that would be the time for me to get back into SDS and profit from the decline.

8 comments:

Dan said...

Jody,

FYI

There seems to be a consensus (from those that I follow) that suggests that the market will drop from here (and potentially quite a bit) but that there may be a pretty good cyclical bull market rally coming around the end of this year (Oct-Jan). Do you think that the election and new presidential term may have something to do with this especially since the credit crunch, housing market, high energy prices are still with us.

I really appreciate your keeping us up to date on your forcasts and recommnedations on how to make $$ in this market ==>> i.e. SDS etc.

Dan

Jody said...

Historically, the second half of each presidential election year has been better than average for the stock market. I assume this is because politicians who want to be re-elected tend to vote for tax breaks and bailouts, which is exactly what's been happening this year.

As far as consensus goes, you know by now that I prefer to bet against it. Every person who thinks the market is going down from here has probably already cashed out of stocks. If they've already cashed out, then all they can do is (1) sit on their cash, which won't affect the market, or (2) buy stocks again, which will make prices go up.

Again, the indicators that I watch have investors being mildly optimistic right now, contrary to the pessimistic consensus you've seen. I'm not sure what that disagreement means.

danr said...

Hi Jody,

I was looking arounsd at instruments, and DXSSX looks like it may have some advantage over SDS. Yahoo finance charts have the ability to show both symbols on one chart, for a good look.

Blake

Jody said...

Yes, that's one of Direxion's mutual funds. The problem there is you need $25,000 minimum to invest in it, which may be too much for younger investors. Also, yearly expenses are 1.75%, as opposed to 0.95% for SDS.

Direxion is in the process of creating ETFs with 300% leverage, tripling the daily movements of various indexes. If you really want more leverage/risk than ProShares' 200% ETFs, then you might want to wait for those.

danr said...

Jody,

Well, that scratches it off my list, lol. Didn't know it was not an etf. Thanks.
Blake

Anonymous said...

Your market targets while pessimistic are not entirely unrealistic IMO. How did you arrive at your target prices and how often will you update them. Also I noticed you don't talk about moving averages. Not important in you opinion. Thanks

Jody said...

My targets are based on a chart pattern that occurred early on in this bear market. The pattern completed a while back, so the forecast will remain in place until it is either reached or nullified by a clear bear market bottom signal. Fundamental considerations happen to support this forecast, but that's just icing on the cake.

I do use moving averages to identify long term bearish and bullish trends. However, I'm not convinced that moving averages act as support or resistance lines, so I don't use them in that regard.

Anonymous said...

Thanks