10/03/11
September and the 3rd quarter ended with a thud on Friday as the Dow lost 241-points.
For the TSP, the C-fund was down 2.50% on Friday, the S-fund lost 2.73%, the I-fund fell 3.28%, and the F-fund (bonds) added 0.12%.
For more on the weekly and monthly returns, please see our TSP Weekly Wrap-Up.
There's no doubt that this chart is broken and being in a bear market, we should expect bearish results. of course that doesn't mean we won't ever get a rally. We have had some big, albeit short, rallies during this 2-month consolidation but so far all of them were selling opportunities.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
In a bull market, you look for opportunities to buy dips. In a bear market you look for opportunities to sell rallies. But if you are a market timer, you will also get opportunities to buy in bear markets - as long as you remember to sell the rallies. The key word here is opportunities. Be ready for them. I don't think we are quite there yet but it could be this week. I would actually be surprised if we don't get a good buying opportunity within the next week or two. It just might get ugly first.
The Rydex Cash Flow ratio is an indication of what investors are doing with their money. The 1.36 to 1 ratio means for every $100 that these investors have in bullish funds, looking for the market to go up, there are $136 in either money market funds or bearish funds, expecting the market to go down. That is the most bearish investors have been since 1999.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This is different than sentiment surveys because what someone does with their money may be different what they say they are doing with their money.
Speaking of surveys, the TSP Talk Sentiment Survey came in at 35% bulls, 53% bears, for a bulls to bears ratio of 0.66 to 1. That is a neutral reading in a bear market which means the system will remain 100% in the C-fund for this week.
Recession? Two widely-respected sources, the Economic Cycle Research Institute and DoubleLine Capital LP, have recently come out publicly and declared that we're in a new recession.
sentimenTrader.com used the historical data from the above resources to see how the market (S&P 500) performed from its peak prior to the recession announcement, to the bottom of that recession selling.
"The table below shows the past 10 recessions. It highlights the peak that the S&P reached prior to the recession, and then the bottom that was reached at the trough. The percentage loss is shown, along with the number of calendar days between the peak and trough."
Chart provided courtesy of www.sentimentrader.com
With the current market down nearly 18% and having peaked 101 days ago, we have seen less severe and shorter declines, but we are still off the median figures of 23.9% and 340 days.
One more thing today. The 3rd year of a president's term is historically quite strong for the market. You have to go back to 1939 to find the last negative year for stocks during a president's 3rd year of their term.
With the S&P 500 down about 10% after the first three quarters in 2011, Obama's 3rd year, we'd need a very strong finish to keep the streak alive. +10% in three months is certainly doable, but with another recession being signaled, it may be too much to ask.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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