Saturday, December 11, 2010

Market Conditions: A Nagging Concern

I keep worrying that readers saw my December 1 suggestion to buy and assumed it was a repeat of August 25. If you have been reading my blog every day, you have seen that December 1 is not a repeat of August 25. I have also changed my projections for how high the market would rise this week. In fact, I was happy to get out of the C Fund at a closing price of 1240 yesterday. Please remember that market conditions are ever changing. A good time to buy for a two month period might be different from a good time to buy for a week. It depends on what the market has to offer up at the time.

I just wanted to make that clear.

I bought the Stock Traders Almanac for 2011 yesterday. It is a wonderful road map, however,it sometimes creates an expectation among investors that can be faded. There are many gems of patterns and cycles that can be put to good use. I used to review the Almanac with Joel at the Main Street Casino buffet in the good old days.

One handy feature is a daily probability rate of a gain and a loss. The authors, Jeffrey Hirsch & Yale Hirsch, have reviewed the historical records of market movements dating back to 1900. What they have found is that the odds of the market going up for each of the days between now and December 20 are as follows: December 13, 57.1 percent; December 14, 42.9 percent; December 15, 38.1 percent; December 16, 57.1 percent; December 19, 52.4 percent; December 20, 38.1 percent. These are probabilities, of course. If you combine these probabilities together, do you see a bullish trend or a bearish trend? I leave that determination up to you.

The authors also have researched the probability of gains in the market based on the trading day's location in the market. They have found that the average daily point gain for the first days of the month would be 33.81. For the other days of the month, the average daily point gain would be -0.54. "Over the last 13 years, the Dow Jones Industrial Average has gained more points on the first trading days of all months than all other days combined. While the Dow has gained 3529.41 points between September 2, 1997 (7622.42) and May 3, 2010 (11151.83), it is incredible that 5173.23 points were gained on the first trading days of these 153 months. The remaining 3034 trading days combined lost 1643.82 points during the period. This averages out to gains of 33.81 points on first days, in constrast to a loss of 0.54 points on all others....S&P 500 first days track the Dow's pattern closely...." 2011 Almanac at page 62.

Institutions tend to buy at the close of the month in anticipation of a strong month. So, mull over this insight. If the institutions are like the Fisherman and they are anticipating a strong close to December, would they be buying or selling on December 10? I think the probabilities are higher that they were selling.

Anyway, these are just a few factors along with my gut that moved me to move 100% out of the C Fund yesterday. Our strategy is to be 100% in the G Fund when the market is going down. I believe the market will be taken down next week in order to create a buying opportunity for institutions and hedge funds and wealthy individuals.

We will see.

Have a great Saturday!

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