Short, low volume, holiday week
                         
This should be an interesting week as the normally positive holiday week faces a market that is stretched to the upside, and with low volume trading expected, anything can happen. 
                                  
The TSP was closed on Friday, but on Thursday the C-fund lost 0.16%, the S-fund fell 0.20%, the I-fund added 0.09%, and the F-fund (bonds) gave up 0.19%.  For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up.  

The momentum remains up and seasonality is strong, but there are a lot of gains to protect during this last week of trading, and we will have to see if profit taking or momentum traders take the lead.

Not much has changed as far as the trend goes, but can it continue, and for how long?
                      
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The NYSE is on the overbought side, although certainly not at an extreme, but we have seen a trend over lower and lower overbought readings during the market rally, which can be an indication of weakness.


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

Once again, the put/call ratios are a concern as the dumb money ratios are up in the overly bullish zones (which is bearish for stocks at these extremes) and the smart money ratio has completely rolled over again.


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

The wild swings we have seen from the smart money is certainly strange behavior but being overly bearish with put options (bets against the market) could be logical if they do not want to sell stocks this week, but want to protect their accounts.  This bearishness from the smart money is generally a bearish sign for stocks in the short-term.

We have been talking about the historical strength of the market during the week between Christmas and New Years, but again the light volume trading could push this market around very easily so if sellers do show up, there may not be much of a fight from the bulls.
                               
                                Chart provided courtesy of www.sentimentrader.com

Here is a chart I have been keeping of the final 2 trading days of the year, plus the first 3 of the new year.  As you can see, over the last 14 years we have had some big positive gains during that 5-day period, and some big negative declines as well, so the volatility is certainly present, but overall the odds do favor the bulls as 9 of the last 14 five day periods, ended with gains.

The TSP Talk Sentiment Survey System finally gave a definitive sell signal last week after the bulls (64%) to bears (20%) ratio hit 3.20 to 1 - well above the 2.0 to 1 sell signal ratio.  That puts the system in the G-fund for this week.                      

One thing to keep in mind this week:  Despite the market being open on Friday, December 31st, I am almost sure that the TSP will not be open (It is not yet posted on the tsp.gov site).  That means the final day's action of 2010 will actually be reflected in January 3rd, 2011's return - not December's, as we probably won't get share prices on the 31st.  I will have to conform this but because the federal holiday is Friday, I am assuming the TSP will not process transactions that day.

Thanks for reading!  We'll see you tomorrow.

Tom Crowley

Administrative Note:  One of our long time forum members, Intrepid_Trader, will be starting a new Premium Service here on TSP Talk.  Intrepid developed his own trading system and has had very good success over the years trading his TSP account, and IRA accounts, and has been consistently near the top of our AutoTracker. 

We are offering a free trial to the service for the next several weeks.  You just need to create a login and password in the premium services area (if you don't already have one.)  No payment information is needed.  Just create an account.  Sign in, and you will have immediate access to Interpid Trader's Investment Strategies Reports. 

The reports will be available by 10:30 AM ET each morning, but his active system signals are not always known until 11:00 AM to 11:30 AM ET, so could see multiple updates on some mornings.  Because of this, you may want to either get into the habit of checking the reports each morning after 11:30 AM ET, and/or sign up for the Intrepid trader email alerts. 

We will send the emails, but unfortunately we can not guarantee that you will receive them timely as not all mail servers are created equally - especially your work servers, which are likely putting the emails through several filters.