TSP Talk - Thrift Savings Plan Strategies

Market Comments

January 26, 2010

Current TSP Share Prices

Today's Commentary (Short Term Outlook)

The bleeding stopped for a day

After three days of carnage, the market gave us a break from the selling, and although the indices closed well off of their highs, they all closed in positive territory giving us at least a temporary reprieve, and potentially a bottom to this pullback - but it's much too early to say.

The Dow picked up a modest 24-points while the C, S and I funds of the TSP gained 0.46%. 0.15%, and 0.88% respectively. Bonds were off 0.11%.

Last week the S&P 500 broke sharply below the first line of support, and the 50-day EMA, and is now testing the next levels of support. Yesterday small gains kept it from making a lower low, but we have a little way to go to (about 1.5%) to recapture that 50-day EMA.

                   Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The dollar broke out of its large bull flag formation and seems to be in the process of forming a smaller, secondary bull flag. It has also moved above, then back below, the 200-day EMA in the process.


                     Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This seems to be bullish for the dollar unless the 200-day EMA does act as resistance. A continued rally would be more detrimental to the I-fund in the intermediate-term, in comparison the the C and S funds, although this pullback portion of the bull flag has helped the I-fund slightly outperform the C and S funds over the last few days. As I write this, the dollar is up in overnight trading and has actually broken above the 200-day EMA again, to over 78.60.

With the light volume modest gains, nothing has really changed from my Monday analysis, so I will leave it down below in case anyone missed it. In a nut shell, I will be looking for a bounce this week, but if the S&P 500 can not recapture the 50-day EMA by the end of the week, I will become much more bearish for the intermediate-term. As I write this the overnight stock index futures markets are deep in the red while Asian markets sell-off. That's not a good sign for the "bounce" theory.

Thanks for reading. We'll see you back here tomorrow.

Tom Crowley

01/25/10

Nail biting time

OK, this is getting a little serious now. Stocks sold off again on Friday as the Dow shed another 217-points. That's 3 consecutive sell-offs, and 4 in the last 5-days.

For the TSP the C, S and I funds all lost just over 2%, while the F-fund slipped 0.02%. See the TSP Weekly Wrap Up for more on the weekly returns.

The S&P 500 broke though the first wave of support, then blew past the 50-day EMA, and is now close to testing the rising parallel channel created by the recent high peaks.

Having closed just 1-day below the 50-day EMA, I am not totally sold on this pullback being anything more than some temporary weakness in a bull market - but things better perk up pretty quickly or we may have something more severe on our hands, which could result in a move down to the 200-day EMA.

                    Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The drop was quite sharp and it does have the sound of a knee-jerk reaction (to Obama's plan for the banks) and if that is the case, we could see buyers step up early this week. I'll be watching to see if the S&P can move back above the 50-day EMA in the next 3 days - similar to what we saw in late October. If not - look out 200-day EMA.

I remember back in 2007 when many of us were expecting the market to fall after a prolonged bull run, and finally in February 2007, the market sold off on some issues in China. It didn't take long for the market to prove the bears wrong as the rally resumed in just a couple short weeks. And guess where the bottom was... That's right - the 200-day EMA.

                      Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Then there was 1987. The bull market was in full force and but we saw the occasional strong pullback below the 50-day EMA, and they all turned out to be pretty good buying opportunities... until the last one.

                    Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

So, we could be in store for an eventual sell off, but I would be surprised if this is the one. The question is, do you want to take that chance? Those are the kind of questions that only you and your tolerance for risk can answer.

The NYSE is pretty oversold, but not quite at the extreme -1000 level that we saw several times during the 2007-2008 bear market.

                    Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The sell-off has the VIX blasting off again, and similar spikes gave us some decent buying opportunities in 2009.

                    Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Whether this is another one of those times remains to be seen. I know this measure of "fear" in the market resonates with me. I am quite nervous about the current situation, but I know how I "feel" has nothing to do with how I should allocate my account. I am actually better off doing the opposite of how I "feel". That's the premise on the contrarian indicators of the sentiment surveys.

And speaking of surveys, the TSP Talk Sentiment Survey came in at 43% bulls, 47% bears for a bulls to bears ratio of 0.91 to 1 last week and that is well below the 1.25 buy signal level so we actually have a buy signal for this week from this system.

On Tuesday and Wednesday of this week, the FOMC will be having their meeting and we will get a decision on interest rates and a policy statement on Wednesday at 2:15 PM ET. Also, Ben Bernanke is up for reappointment and last week there was some doubt about whether or not that would happen. The odds look better today. If Ben does not get reappointed for some reason, the market may not be so happy. He is not the most popular person after the financial crisis, but many believe a change would be too disruptive at this time. His reappointment may be of some relief to the bulls on Wall Street.

It should be an interesting week. I am optimistic that we will get some kind of bounce, but as I mentioned, if the S&P 500 can not climb back above the 50-day EMA by the end of the week, I will have a totally different tune.

Thanks for reading. We'll see you back here tomorrow.

Tom Crowley

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