Market Comments

 November 16, 2010

Current TSP Share Prices
Today's Commentary                                           
Still testing the 20-day EMA
Stocks opened higher yesterday, and rallied until about 2 PM ET before reversing course.  The Dow hung onto a 9-point gain by the close, while the S&P 500 and Nasdaq closed down for the day.

                                  
For the TSP, the C-fund lost 0.11%, the S-fund added 0.08%, the I-fund slipped 0.06%, and the F-fund (bonds) fell 0.49% as bond yields continues to rise. 

Taking a look at the chart of the S&P 500, and it appears to be a typical buying opportunity as the index sits atop of the 20-day EMA after a little pullback.  And while the break of the recent trend could be our first warning, this may be the spot to buy, but...

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

... of course there are no guarantees and surprisingly we've seen two similar looking peaks in 2010 that did not end well.  One preceded the May "flash crash" but the during the two days prior to the crash we saw a break of both the 20-day EMA and the 50-day EMA, so there were warnings there as well. 


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

The January top saw a similar decline into the 20-day EMA - a one-two punch that took the S&P from a peak to below the 50-day EMA in just a few days.  So, what may look like an easy buy the dip opportunity, is not always what it appears. 

Despite my pessimism in the fundamentals of the economy, I was fully expecting this rally to continue higher because of the Fed pumping money into the system at the time of year when stocks tend to flourish.  This little break in the recent trend was not a deal breaker for the market, nor was the fact that the S&P was not able to hold above the April highs, but these are warning signs, and as we saw above, these warnings are not always forgiving if ignored.

The NYSE has pulled back into oversold territory although not yet at an excess.  It is the most oversold the index has been since August.
                        
                      Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
It is usually profitable to buy an oversold reading in a bull market, but as we have been talking about the last few days, market sentiment may still be a little too bullish to jump in if you are on the sidelines.  Whether to sell if you are already in will depend if you believe this market will rally off of the 20-day EMA, or if we need to test the 50-day EMA first.  I wish I was smart enough to tell you.  I am playing it safe for now having used an IFT on Friday, but I won't hesitate to buy back in if the 20-day EMA continues to hold for a few more days.

Thanks for reading!  We'll see you tomorrow.

Tom Crowley   

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