11/21/11
Stocks were flat to mixed on Friday as we saw a modest gain in the Dow, weakness in the tech stocks, and the S&P was even. We head into the seasonally positive holiday week with a very fragile technical picture and some big questions marks as the deficit reduction negotiations hit a stalemate and a deadline.
For the TSP, the C-fund slipped 0.03% on Friday, the S-fund fell 0.06%, the I-fund gained 0.28%, and the F-fund (bonds) lost 0.16%.
For weekly and monthly TSP returns, please see our recent TSP Weekly Wrap-Up.
Taking a look at the major indices and it is really tough to make a call for this week. The S&P 500 is on the brink of a major failure...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
... that is unless the breakdown last week was what we have been expecting, which is a fake-out before a breakout. I won't give it more than a couple of days to recover and prove itself.
The Dow looks a little better with the 50 and 200-day EMA holding, and we actually had the 50-day EMA officially move back above the 200-day EMA
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq 100, which is a leading large cap tech index and has been outperforming during the recent rally off of the October lows, is now buckling and testing the 200-day EMA.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
While the Dow Transportation Index, the leader among U.S. indices, is still within its triangle formation. It has been bouncing above and below the 200-day EMA for the last month, but it has remained above the 50-day EMA since it first broke above it in early October.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
There is some support worth noting, from the August and September highs.
I view all of these charts as vulnerable, but should the market turn up early this week, it would just appear that support held and show that it was a good buying opportunity and we'll say, "what was all the fuss about?" But we head into a week that includes a major deadline for the Super Committee and it appears they are not even close to making a deal on the deficit reduction. How the market will react to that will be interesting since most of us did not believe a deal would be made anyway, so a non-deal may already be priced in. Does that mean if a deal is made we can expect a rally? Why not?
Seasonality is very strong on Wednesday and Friday of this week, but things drop off next week.
Chart provided courtesy of www.sentimentrader.com
Our TSP Talk Sentiment Survey came in with a bulls (49%) to bears (39%) ratio was 1.26 to 1. In a bear market this is a sell signal. In a bull market a 1.26 to 1 ratio would be very close to a buy signal, but with the 50-day EMA still ~12-points below the 200-day EMA, the system officially remains on the bear market rules side.
I have to admit that I am very nervous about the possibility of this market rolling over hard this week, but I try never to use my "feelings" or instincts because they are usually wrong.
With only 2 IFT's allowed per month, we are not given the opportunity to sit it out and leisurely wait to see if the market can bounce off of support. That means I have to wait to see if the indices fail before bailing, otherwise the market could take off without me while waiting for the new month's IFT's. That's what happened in October and it cost me a lot of money.
The TSP and buy and holders would argue that I would not have missed most of the October rally had I just stayed the course and held onto the stock funds through thick and thin. They say it is too risky to "trade".
It's true I would not have missed the rally had I stayed in, but should stocks breakdown here and begin any kind of prolonged decline, I can step aside and wait where they will take the full brunt of any correction. To me, the bigger risk is in a buy and hold strategy. I don't equate the risk level of missing a rally with the risk of actually losing money, but to each their own. With all of the stock funds in negative territory for the year, and 4 of our 5 premium services showing a positive return, I still believe in market timing.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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