2/14/12
Stocks rallied yesterday grabbing back most of Friday's losses. The Dow gained 73-points but it wasn't an easy day as the early gains almost completely disappeared before stabilizing a couple of hours into the trading day.
For the TSP, the C-fund was up 0.70% yesterday, the S-fund gained 1.12%, the I-fund made 0.91%, and the F-fund (bonds) slipped 0.04%.
The S&P 500 has held up pretty well, but is struggling to make any further upside progress. A little consolidation is a good thing, but the normally negative flat top formation we are seeing needs to break to the upside. The highs over the last 5 trading days have been a tight range - 1351, 1354, 1351, 1353, 1352 - all while support is rising underneath.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow Transportation Index picked up steam as the day went on yesterday and put in a higher high, and a higher low over Friday's sell-off. It also closed at a 4-day high, but the old support line may become resistance.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If it can stay above the 20-day EMA, the prognosis for the S&P 500's will be more positive.
If you read the headlines you know that the U.S. economy has shown signs of improving and the stock market is has been behaving well in reaction to it, but there are so many problems, warning signs, obstacles in the way that you have to wonder what is keeping this market up.
From Greece and all of the problems in Europe. There's a real possibility of income and capital gains tax increases along with cuts in government spending could trigger another recession. How about the $15 trillion national debt, which is rising quickly?
Obamacare costs will make hiring more costly for small businesses and affect the bottom line of some larger companies.
Israel is now considering targeting Iran's nuclear facilities and who knows what the ramifications of that might be? What would that do to the price of oil and gas? Oil is already back over $100 a barrel, and gas should be pushing $4 a gallon this spring. How about the destabilizing of the Middle East as violence escalates?
So why the heck is the market near multi-year highs? Because there is no better place to put your money right now. Bond yields remain low and when they are near 2%, investors are more likely to take their chance in a stock market that is fairly, to undervalued right now.
If we start seeing bond yields hit 3%, 3.5%, 4% or higher, I think the stock market will start to bleed as a guaranteed 4% return is more desirable than gambling with the geopolitical chaos.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
While not a perfect comparison, the earnings yields of the S&P 500 at the end of 2011 was 7.56%.
Moody's cut the debt ratings of Italy, Spain and Portugal and France, Britain and Austria were put on warning. Also cut were the ratings for Slovenia, Slovakia and Malta. This put pressure on the futures last night and the Asian markets were trading down nearly 1%. Let's see how U.S. markets react today.
Thanks for reading! We'll see you tomorrow.
Tom Crowley
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