The Test

8/19/11

Stocks dropped sharply on Thursday after a weak economic outlook, and some weak data. The Dow lost 420-points.

Morgan Stanley slashed its global growth forecast and the Philly Fed Index came in much lower than expected. The Philly Fed reading is the lowest since March of 2009, which happened to be when stocks bottomed in the 2007-2009 bear market, so if you are looking for a silver lining... We'll talk more about that below.

For the TSP, the C-fund dropped 4.45% yesterday, the S-fund lost 05.61%, the I-fund fell 4.87%, and the F-fund (bonds) added 0.19%.

The S&P 500 moved sharply lower as the first test of the early August lows got underway. Despite the pain, this is healthy. Of course we need to see those lows hold before we call this a successful test.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Volume picked up on the sell-off.

Not surprisingly, the market leaders broke down from their bear flags and rising wedges. All eyes are now on whether or not these leaders can hold their lows.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The Dow Transportation Index actually made a lower low, but did manage to close above the previous low. However, the sharp short-term descending trend line is still acting as resistance.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The yield on the 10-year T-note dropped below 2.0% briefly yesterday. That is an all-time low for that treasury note. This is not a good sign for the economy.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

As I mentioned above, the Philly Fed report came in much lower than expected. The estimates were looking for a reading of 1.0, and it came it at -30.7. So much for estimates.

Looking for that silver lining...

Chart provided courtesy of www.sentimentrader.com

The TSP Talk Sentiment Survey moved to the bear market rules after the 50-day EMA fell below the 200-day EMA this week. The survey came in at 27% bulls, 65% bears for a bulls to bears ratio of 0.42 to 1. That is a buy signal in any kind market but the system moves from 100% S-Fund to 100% C-fund for the week of 08/22/11 - 08/26/11, due to the bear market rules.

Here is the criteria for the bull / bear market rules for the sentiment survey sustem.

Thanks for reading! Have a great weekend!

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.

 

[polarbear]

As to the lows holding, look at the futures. 21:27ET: -85, -10, -13.25. Yes, this is healthy, the market will find a bottom. The lows that will hold will be the lows that will take place at the bottom. But how do you know when the bottom is in place? The problem for me is that while tops last forever and meander all over the place, lows are a messy and unpredictable process, it's hard not to see any part of it as not catching a falling knife, who knows how much farther they will go at any point? There seem to be indications of exhaustion: breadth and volume. I don't know any more than this.

I know it's nice to get wise early and be out earlier rather than later, but better later than never, that way you can recupe earlier rather than later or never. Sure, it's nice to not have to recupe in the first place, but recuping is recuping. It happens when it happens. A lesson for me.

A few people talk about 1090 as a target. It's starting to look in that direction. I don't know. It seems it depends on when the big investors (hedge funds, etc.) think they've got a bargain. They pull their money out and they put their money in. Them and the big investment banks. They seem to be the drivers.

There are three interesting articles in safehaven.com, especially the first and last:
http://www.safehaven.com/article/22225/sure-looks-like-2008

http://www.safehaven.com/article/22220/economists-refuse-to-recognize-the-new-great-depression

http://www.safehaven.com/article/22222/unglued

And: Contrary Indicator, Daniel Gross: Behind the sell-off: wny Europe matters most.
Read it!

 

[kassypoo]

I'm not going to try and be a hero. I'll wait for some higher highs and higher lows, and less volatility before I jump back in. I've been able to preserve most of my TSP by being in the G and F fund for a good part of this year. I don't mind missing some of the upside.

 

[IndianaJones]

As to the lows holding, look at the futures. 21:27ET: -85, -10, -13.25. Yes, this is healthy, the market will find a bottom. The lows that will hold will be the lows that will take place at the bottom. But how do you know when the bottom is in place? The problem for me is that while tops last forever and meander all over the place, lows are a messy and unpredictable process, it's hard not to see any part of it as not catching a falling knife, who knows how much farther they will go at any point? There seem to be indications of exhaustion: breadth and volume. I don't know any more than this.

I know it's nice to get wise early and be out earlier rather than later, but better later than never, that way you can recupe earlier rather than later or never. Sure, it's nice to not have to recupe in the first place, but recuping is recuping. It happens when it happens. A lesson for me.

A few people talk about 1090 as a target. It's starting to look in that direction. I don't know. It seems it depends on when the big investors (hedge funds, etc.) think they've got a bargain. They pull their money out and they put their money in. Them and the big investment banks. They seem to be the drivers.

There are three interesting articles in safehaven.com, especially the first and last:
http://www.safehaven.com/article/22225/sure-looks-like-2008

http://www.safehaven.com/article/22220/economists-refuse-to-recognize-the-new-great-depression

http://www.safehaven.com/article/22222/unglued

And: Contrary Indicator, Daniel Gross: Behind the sell-off: wny Europe matters most.
Read it!

Good stuff. I always like finding new websites to gleen knowledge from. Thanks PolarBear.

 

[polarbear]

Thanks, Indiana, I added some more comments like that under Swimming Pools just now, and you are smart, Kassypoo, I would even say, gifted.

When you get things wrong, you have to sweat the load. When you get things right (through PATIENCE), you just have to sit there and wait, and the Market comes to you. Kind of like the Party in that guy's joke from the USSR. Yeah, the party coming to me. Friday night it's all right. I recently bit myself in the a&&, but it could have been worse. Am still not happy. Pre-happy doesn't count. But current events are opening the door just a crack. We'll see.

 

[Appatite]

When you are in the plus column, it is easy to sit back and wait around for the higher highs. But when you have gone negative, and with only 2 IFT's, you can't sit around waiting. 1090 seems to be the number at this point. I have been hoping (almost a 4 letter word) that we would slow down this downward trend until after friday so I could make a re-entry on COB monday. 1120 was actually the number I kept in mind. But if the S&P dives between 30 and 50 points today, I really don't have much choice but to buy back into the S fund. I made a terrible choice in leaving the funds in S when I went on vacation in late July early August with Obama and congress driving the train. Nothing I can do to recoup that damage, but I can't sit here in the (G)arage when I am -9% for the year and a resistance/support line is about to be hit. 1 IFT left this month. Use it or lose it, but at this point I see no reason to lose it at 1090 for a possible bounce back up. Then into the (G)arage we go again.

 

[Mapper]

These last couple of blog titles are getting ominous! "Death Cross" "The Test".
OK, fine, the markets are ominous too.

Thanks again for all the insight!

 

[dpmp]

Major support at 1101, tested twice within 3 days last week. Market could bounce again at that level but buy orders may have depleted at the next trip, if it ever gets there again. I'm just discussing TA and no considerations of external events that could shape the market. Economic data will be part of the unknown.

(sorry, that was 1122 rather than 1101).

 

[dpmp]

Today is option expiration day. Short bets are being covered early. I think it will be a sideway movement day today, unless the shorts cleaned up early then the bottom would fall apart at the close. What I am not sure about is what event could happen in the weekend leading into Monday. I might want to take a light dip testing the water.

 

[dpmp]

The "ominous" sign of a continuing decline gave me the cold feet. Half wanted to catch the falling knife, half wanted to continue waiting for a better sign before making the plunge, even though my current strategy is nothing more than hit-and-run. So, no testing the water for me this week. And I am extremely bored.

 

[tsptalk]

I did pull the trigger for probably a one day move for Monday...

http://www.tsptalk.com/mb/showthread.php?7701-Market-Outlook&p=328453#post328453

 

[twohorsefarm]

I did pull the trigger for probably a one day move for Monday...

http://www.tsptalk.com/mb/showthread.php?7701-Market-Outlook&p=328453#post328453

Still in F fund, but did buy TZA (3x small cap bear) at lunch for a quick trade out near close, then into FAS (3x financial bull) near the close for monday. Looking at the same play. Did not like the flat move today on F fund again I was looking for a better play on the down turn. Will be into G if it does not show better action. I think most of the people looking to play it safe are already in and are looking to get out.

 

[tsptalk]

I made a little money on the short side this week too, although quick moves more often back fire on me. Had some SDS (2 x bear) S&Pand TZA (3 x bear small caps) going into the day, bought a little more SDS when the Dow was up about 50. Sold it all a little early (before the real selling kicked in on Friday), but made money.

 

[Investrite]

Sitting on the sidelines, since April 28th in the Fixed fund. Worried several times about missing an upwind move, but as it has turned out I am staying put till I see upward momentum with volume conviction. I have actually made money, albeit less than a Bull run in equities. As is always the case I will have missed the very strongest days upward. But those in control of this market, (not this economy) are far too powerful to mess with and I am less than 2 years from retirement.

How on earth will we ever get the Thrift Board to add more investment opportunities? Real Estate, Gold, Emerging, Commodities, and so on.

My belief is that until giants in the banking and tech sectors stop falling, even with retail advancing somewhat, it is unsafe to load up. therefore I continue to add biweekly to the C,S & I funds on a dollar cost averaging basis, while sitting in the Fixed category.

 

[tsptalk]

Welcome Investrite! We've had a couple of near parobolic rallies since April. Congrats on your patience to stay out.

 

[Investrite]

Thanks Mod.

 

[dpmp]

I'd like to see some bear funds to play with. That should double the fun.