How long can the uptrend last?
We saw some modest gains in U.S. stocks again last week, keeping the rally going as we head down the home stretch of 2010. With the tax cuts now extended and the Fed continuing to provide liquidity, the recipe for this bull market to continue could be in place.
For the week, the C-fund added 0.30%, the S-fund gained 0.37%, and the I-fund slipped 0.10% with the pressure from a stronger dollar. Bonds (F-fund) were up 0.08%, and the G-fund picked up 0.05%.
For the month of December, the C-fund is now up 5.45%, the S-fund has gained an impressive 6.16%, and the I-fund is up 5.69%. The F-fund is down 1.43%, and the G-fund is up 0.11%.
Taking a look at the annual returns, you can see that allocation makes a big difference. While all of the funds are positive, some have obviously done better than others this year. The S-fund is up 22% more than the I-fund in 2010, and nearly 14% higher than the C-fund. Of course past performance is no guarantee for future results, so we must monitor where the strength is all the time.
I follow the S&P 500 chart, which tracks our C-fund, as a guide for market direction, but when you take into consideration things like interest rates and the strength of the dollar, where we are in the economic cycles, etc., then you can adjust to the funds that do best in those environments. Small caps tend to do well in low interest rate environments, and we know the I-fund is greatly affected by the direction the dollar is moving.
The trend of the S&P 500 remains up.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We have seen investor sentiment get more bullish as the rally continues, but I still hear a lot of nervousness out there as this rally gets more extended. I do get nervous myself when I see headlines like this from USA Today:
Experts agree: Get over your fear and get back into stocks
We follow many indicators that are flashing warning signs right now, including excessive bullishness, but sometimes you have to put blinders on and stick with what is working. We could see a slowdown in the angle of incline of this rally, but while the S&P 500 remains within the trend lines A & C in the above chart, it is tough to get too bearish. If trend line B breaks, and that is currently weak support, we could see a test of the 20-day EMA (currently near 1123) and then support line C. I would expect line C to hold any test, but if it doesn’t we’ll know it may be time to step aside.
The dollar has been bouncing between the 50-day EMA and the 200-day EMA showing recent buoyancy after the early December decline. As we continue to get improving economic data, we could start seeing both the S&P 500 and the dollar move up, breaking its recent trend of moving in opposite directions.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If that happens I would be inclined to avoid the I-fund in lieu of the C and S-funds. But if the dollar does rollover again, the I-fund is back in play. We’ll have to keep an eye on which way it wants to break – above the 200-day EMA, or below the 50-day EMA.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
Join us on Facebook
We saw some modest gains in U.S. stocks again last week, keeping the rally going as we head down the home stretch of 2010. With the tax cuts now extended and the Fed continuing to provide liquidity, the recipe for this bull market to continue could be in place.
For the week, the C-fund added 0.30%, the S-fund gained 0.37%, and the I-fund slipped 0.10% with the pressure from a stronger dollar. Bonds (F-fund) were up 0.08%, and the G-fund picked up 0.05%.
For the month of December, the C-fund is now up 5.45%, the S-fund has gained an impressive 6.16%, and the I-fund is up 5.69%. The F-fund is down 1.43%, and the G-fund is up 0.11%.
Taking a look at the annual returns, you can see that allocation makes a big difference. While all of the funds are positive, some have obviously done better than others this year. The S-fund is up 22% more than the I-fund in 2010, and nearly 14% higher than the C-fund. Of course past performance is no guarantee for future results, so we must monitor where the strength is all the time.
I follow the S&P 500 chart, which tracks our C-fund, as a guide for market direction, but when you take into consideration things like interest rates and the strength of the dollar, where we are in the economic cycles, etc., then you can adjust to the funds that do best in those environments. Small caps tend to do well in low interest rate environments, and we know the I-fund is greatly affected by the direction the dollar is moving.
The trend of the S&P 500 remains up.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We have seen investor sentiment get more bullish as the rally continues, but I still hear a lot of nervousness out there as this rally gets more extended. I do get nervous myself when I see headlines like this from USA Today:
Experts agree: Get over your fear and get back into stocks
We follow many indicators that are flashing warning signs right now, including excessive bullishness, but sometimes you have to put blinders on and stick with what is working. We could see a slowdown in the angle of incline of this rally, but while the S&P 500 remains within the trend lines A & C in the above chart, it is tough to get too bearish. If trend line B breaks, and that is currently weak support, we could see a test of the 20-day EMA (currently near 1123) and then support line C. I would expect line C to hold any test, but if it doesn’t we’ll know it may be time to step aside.
The dollar has been bouncing between the 50-day EMA and the 200-day EMA showing recent buoyancy after the early December decline. As we continue to get improving economic data, we could start seeing both the S&P 500 and the dollar move up, breaking its recent trend of moving in opposite directions.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If that happens I would be inclined to avoid the I-fund in lieu of the C and S-funds. But if the dollar does rollover again, the I-fund is back in play. We’ll have to keep an eye on which way it wants to break – above the 200-day EMA, or below the 50-day EMA.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
Join us on Facebook 