08/15/11
Despite the triple digit gain in the Dow, the market was rather subdued on Friday compared to the prior four trading days, which all experienced 400-600 point moves. The broader market indices moved up more modestly on the day.
For the TSP, the C-fund gained 0.53% on Friday, the S-fund was up 0.48%, the I-fund picked up 0.95%, and the F-fund (bonds) added 0.38%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-Up.
The S&P 500 is trying to form a bottom but it isn't always that easy. Even if 1100 turns out to be the low, after a precipitous decline such as we just experienced, many times the indices like to test the low again before the bottom is in - and of course, sometimes the test does not hold.
It looks like the 50-day EMA is going to move below the 200-day EMA this week, and that is usually a bearish sign for the market. We actually use that to determine if we are in a bull or bear market and the death cross (50 below 200) would put us in a bear market.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We saw a similar move last summer (2010) but rather than staying below the 200-day EMA, the 50-day EMA just kind of meandered above and below it for a couple of months before the market eventually broke to the upside.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The chart above also shows the choppy consolidations that we can see before a market reverses up after a sharp decline. They don't always resolve themselves to the upside, like we saw near the point marked "B". It looked like a nice bottom was being formed but the market decided to move down to test the lows again. It eventually took three months and three tests of the lows before a bottom was formed. That could be what happens here. I can see a relief rally turn into a couple of tests heading into September / October. The sharper the decline, the less likely the market gets right back up unscathed - and the recent decline was very sharp.
The 2008-2009 decline also saw a similar drop, rally, test, test, bottom. The final low in March of '09 saw a "V" bottom, but the others were all tested.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We got a very poor Michigan Consumer Sentiment report on Friday. One of the worst in decades. This can be a contrarian indicator like our sentiment surveys, in that when consumers are at their lowest, there is probably no where to go but up. Of course, "it could be different this time", but I don't know. It is not an instant gratification indicator, but we could be weeks or a couple of months from seeing the decline end, and the rally resume, just based on this report.
The TSP Talk Sentiment Survey came in at 51% bulls, 41% bears, for a bulls to bears ratio of 1.24 to 1, which is still a buy signal, so the system's allocation remains 100% S-Fund for this week. With the 50-day EMA about to move below the 200-day EMA on the S&P 500 chart, we could see the system move to bear market rules.
Thanks for reading! We'll see you back here tomorrow.
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
Despite the triple digit gain in the Dow, the market was rather subdued on Friday compared to the prior four trading days, which all experienced 400-600 point moves. The broader market indices moved up more modestly on the day.
For the TSP, the C-fund gained 0.53% on Friday, the S-fund was up 0.48%, the I-fund picked up 0.95%, and the F-fund (bonds) added 0.38%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-Up.
The S&P 500 is trying to form a bottom but it isn't always that easy. Even if 1100 turns out to be the low, after a precipitous decline such as we just experienced, many times the indices like to test the low again before the bottom is in - and of course, sometimes the test does not hold.
It looks like the 50-day EMA is going to move below the 200-day EMA this week, and that is usually a bearish sign for the market. We actually use that to determine if we are in a bull or bear market and the death cross (50 below 200) would put us in a bear market.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We saw a similar move last summer (2010) but rather than staying below the 200-day EMA, the 50-day EMA just kind of meandered above and below it for a couple of months before the market eventually broke to the upside.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The chart above also shows the choppy consolidations that we can see before a market reverses up after a sharp decline. They don't always resolve themselves to the upside, like we saw near the point marked "B". It looked like a nice bottom was being formed but the market decided to move down to test the lows again. It eventually took three months and three tests of the lows before a bottom was formed. That could be what happens here. I can see a relief rally turn into a couple of tests heading into September / October. The sharper the decline, the less likely the market gets right back up unscathed - and the recent decline was very sharp.
The 2008-2009 decline also saw a similar drop, rally, test, test, bottom. The final low in March of '09 saw a "V" bottom, but the others were all tested.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We got a very poor Michigan Consumer Sentiment report on Friday. One of the worst in decades. This can be a contrarian indicator like our sentiment surveys, in that when consumers are at their lowest, there is probably no where to go but up. Of course, "it could be different this time", but I don't know. It is not an instant gratification indicator, but we could be weeks or a couple of months from seeing the decline end, and the rally resume, just based on this report.
The TSP Talk Sentiment Survey came in at 51% bulls, 41% bears, for a bulls to bears ratio of 1.24 to 1, which is still a buy signal, so the system's allocation remains 100% S-Fund for this week. With the 50-day EMA about to move below the 200-day EMA on the S&P 500 chart, we could see the system move to bear market rules.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
