11/30/11
Stocks did not rollover after Monday's big rally, but the market did not exactly follow-through on it either. The Dow closed up 33-points after opening on the downside, and being as much as 100-points up two different times during that day.
For the TSP, the C-fund gained 0.26% yesterday, the S-fund was down 0.08%, the I-fund was up 1.13%, and the F-fund (bonds) lost 0.09%.
The +0.02% gain was insignificant and it is trading right in the middle of the new descending trading channel, and below all of the major moving averages. On the positive side, the S&P 500 did make a higher high and a higher low yesterday. On the negative side it created a possible reversal day formation.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The picture is mixed with the descending trend and many are expecting this rally to fail, but let's look at some of the positives.
The weekly chart shows that the S&P 500 is now trading above both the 200-day EMA (exponential moving average, which I normally use) and the 200-day SMA (simple moving average, which many traders use.) This is significant in that these moving averages can offer very strong support and resistance. Once the S&P moves above or below them, it is not always easy to get back on the other side.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The fact that the S&P was below both of these moving averages in September, then recaptured them, is a big positive. Last week the 200-day EMA was broken again, and that was a bad sign. But here it is, back above both of it. It's too early to say, but it is a big first step in a possible rally into the end of the year.
Here is another positive indicator from the smart money. The OEX put / call ratio is at 1.17. You can see that the last few times this level was hit this year, the market bottomed and reversed the the upside.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We are all aware of the problems in Europe and closer to home, the issues with our debt and deficit, the gridlock and political strife in Washington, and the possibility of further downgrades to our credit rating should the problems not get fixed. This market could be in big trouble over the next few years but that doesn't mean we disregard buying opportunities.
Getting a 2.5% annual return in the G-fund is not a great long-term plan when saving for retirement. There are times when that is a good place to be but based on the charts and indicators, we could be on the cusp of a nice Santa Claus rally, and I believe the answer is in the charts and indicators, not the headlines. The headlines would have us hoarding food and building a bomb shelter.
The charts and indicators can change at any time (as we've seen), and should things rollover again, I will have to take those miniscule returns of the G fund, but right now I want to try to take whatever the market is willing to give us. Sounds a lot like gambling, don't it? But to me, the buy and holders are the one's gambling - but I won't get into that today.
A little follow up on the 10-year T-Note yield: It managed to climb back over 2% yesterday, but just barely. I really want to see yields move higher and particularly the 10 year staying above the 2% level, and preferably higher. Anything lower than that and it means the bond market is probably not looking for a rally in the stock market.
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.
