08/24/11
Stocks were due for an oversold / overly bearish sentiment bounce and yesterday we got it. The Dow gained 322-points and the trick now will be for the indices to follow-through and take out some resistance.
For the TSP, the C-fund was up 3.43% yesterday, the S-fund jumped 4.23%, the I-fund gained 2.41%, and the F-fund (bonds) lost 0.31%.
As I mentioned yesterday, it could be that we are going to trade in a range between 1125 (or 1100) and 1200, but as you can see there is immediate short-term resistance from the recent descending trend line.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The open gap on the Nasdaq chart is still very glaring and could pose a target for any continued rally in stocks. That would take the index to near 2490 which is about 2% above the current level.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I have mixed feelings about this market. I was looking for a short-term bounce and we got that, but I am still thinking we could test the lows again before we eventually bottom and start an end of the year rally.
This is what happened in 2008, but as some of us discussed on the message board yesterday, I don't believe the economic situation is as bad as it was in 2008.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If we take the 2010 scenario, the S&P 500 tested and held the lows in August and after a huge September 1st rally, started a relentless climb for several months that did not give those on the sidelines much of a chance to get in.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If you missed the September 1 rally in 2010, and you wanted to wait for a buyable pullback instead of chasing the market, you could have missed a 175-point rally in the S&P from the August 31 low to the November high before we saw a meaningful pullback.
The danger of trying to pick a bottom during a bear market is obvious. You could be caught in a major decline. But the danger of not attempting to pick a bottom could cause you to miss large gains like we saw in 2010. It is a matter of preference and risk tolerance, I guess.
Bonds finally saw a little pullback as yields have rallied modestly off of their lows (bond prices go down when bond yields go up.) You will notice though, that the important 10-year T-note yield may have found resistance once that open gap was filled just below 2.2%.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I think the only thing that would cause yields to move down again - should this resistance hold - would be if stocks retreated again. Otherwise if stocks continue to rally, we should see a higher yield on the 10 year T-note, thus lower bond prices and a lower F-fund.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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