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Market Comments

March 14, 2011

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Today's Commentary

Why was the market down on Thursday and up on Friday?

On Friday, the market tried to decipher a day marred by disaster - and relief. The indices closed in positive territory for the most part, on a day when many expected trouble and we got even worse.

For the TSP, the C-fund gained 0.74% on Friday, the S-fund added 0.58%, the I-fund fell 0.50%, and the F-fund (bonds) slipped 0.02%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up.

I have a couple of theories about the major sell-off on Thursday, and the rally on Friday. I spoke about it a little last week when I speculated that we could see a "sell the rumor, buy the news" reaction to the scheduled "day of rage" in Saudi Arabia on Friday. Perhaps that was what happened as the protests turned out to be surprisingly tepid. The price of oil actually went down on the day.

The other theory, and this may be considered a cold interpretation, is that it was related to Japan. I am not very good at expressing myself when it come to news like this. Instead, I believe actions are more powerful than words, so like I did after the earthquake in Haiti, I set a fundraiser with MercyCorps for anyone looking for a way to help. Please go here for more information.

I have long believed that the market is like a huge mastermind that, as a whole, knows almost all things. Individually, none of really know much of what is going to happen, but when millions of people are buying and selling in market, a completely separate mastermind is created that is more knowledgeable than any of its individual participants. That's why we see the charts often foretelling the news headlines.

So why the stock market started to slide from the high it made just over two weeks ago seems easy enough with what has been happening in the Middle East. But of course the trouble in the Middle east started well before that, back in January with Egypt, and the market made new highs for another month afterward.

The the Dow had its worst day in over 7-months just hours before the devastating earthquake hit Japan. Silly? Maybe. But did you know the Dow dropped 10% during the 2-weeks prior to September 11, 2001? It just seems that the charts tell us the news before the headlines do.

So why did the market rally on Friday? Again, it could have been a follow up to the sell the rumor, buy the news out of Saudi Arabia, but also the market could have been looking ahead to the economic ramifications to U.S. companies in a recovery effort in Japan - I don't know.

On Friday, in response to the market's rally, I heard a radio talk show host say something like, "If anyone tells me they can understand what makes these market move - they are lying." He was basically saying that no one can figure it out. But if you just look at it from different perspective, you can usually find some sense in what is happening.

As I wrote about in the Weekly Wrap-Up, I believe the market is actually setting up for another rally based on the chart formations, and the recent Sentiment Survey results (which I will post below). I hope I am right, but as I mentioned last week, whether I am right or wrong doesn't really matter. What matters is that I react to what does eventually happen.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Should the indices break down below the support levels and EMA's we are watching for more than a couple of days, I will admit the market is once again correct, and that I am wrong, and I will react accordingly. If I am right, yeah for me. But the market is always right - despite that it tries so very hard to confuse us into making the wrong move.

The overnight U.S. futures are down pretty sharply as I write this late Sunday night, and not surprisingly Japan's Nikkei is down about 6%. The Nikkei was just about to close on Friday afternoon (Tokyo time) when the earthquake hit so the effects of the devastation were not known at the time. Last night (Monday morning in Tokyo) was the 1st full trading day after the quake.



As always, the closing prices are more important than the opening prices, so let's see how the day plays out.

The TSP Talk Sentiment Survey gave another buy signal after the 0.59 to 1 bulls (33%) to bears (56%) ratio last week. That means the system's allocation remains 100% S-Fund for this week.

Thanks for reading! We'll see you tomorrow.

Tom Crowley
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