01/26/12
Stocks opened lower on Wednesday but rallied sharply after the Fed signaled that an additional quantitative easing is a possibility, and that rates should stay near 0% through 2014. The Dow gained 81-points on the day.
For the TSP, the C-fund gained 0.88% yesterday, the S-fund was up 1.19%, with the help of a decline in the dollar, the I-fund gained 1.34%, and the F-fund (bonds) was up 0.22%.
I saw yesterday's rally as an emotional one, but in a bull market we shouldn't be too surprised that we saw a bullish outcome. The question is, does an emotional rally in an extended market, have staying power?
The rally took the S&P 500 above the longer-term resistance line (red), and back to the top of the short-term rising trading channel (blue). That kind of strength surprised me in this overbought environment.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow Transportation Index led the way with a 1.5% gain after it bounced off of support at the 20-day EMA and the bottom of its short-term rising trading channel.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This could be a sucker rally to pull more people in before a pullback, but so far technically, the buy the dips in a bull market strategy seemed to work perfectly for anyone smart enough to do so. Too bad it seems that it is the dumb money that is most bullish. It makes things confusing for those of us following normal indicator patterns.
It looks like the dollar has broken its recent sharp rising trend as it is now just below the 50-day EMA. I think we can safely assume that the stock market is no longer moving counter to the dollar as we have seen both stocks and the dollar move more in unison since November.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We can probably go back to just using the dollar as a negative divergent influence on the I-fund rather than all of the stock funds.
In yesterday's Interpid Timer report, Mike posted this long-term chart of the S&P 500. You can kind of see why back before 2000 conventional wisdom for investors was "buy and hold." But in the last 11 years a buy and hold strategy didn't get you too far returns-wise, and who knows when, if ever, things will move back to "normal?"
Something tells me with that, with a $16 trillion dollar national debt (after the next debt ceiling increase) and with Europe continuing to struggle with their financial mess, the market indices won't be moving in a straight line for any length of time, any time soon.
Just some fodder for the reason why we say that friends don't let friends buy and hold here, and why trading systems like Intrepid Timer's make sense as an investment strategy - something your parents and grandparents may not have approved of.
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.
WCPF
