Today's Comments (Short Term Outlook)                             Printer friendly

New trend?  Not yet The market had a nice showing yesterday following through on Tuesday's rally with more impressive gains. On Tuesday we talked about the market being due for a break out, up or down, from the tight trading range.  Right on queue, we got the break to the upside.  We talked about seeing a gain in the 5% range before possibly reversing - as we have seen since this correction started in October.  So far the major indices, S&P, Nasdaq, and Dow, are up between 2% to 2.5%, since that breakout, but closer to 3.5% from last week's low.  It's a good start for a bottom formation, but we'll want to see the S&P 500 move above 1396, the high made on February 1.  At that point we'll be able to connect the low made in January with the higher low made last week, and connect the February 1 high with a new high above 1396, to say a new short-term uptrend has been started.  But until then, this is still just a rally within a bear market downtrend.  The 50-day moving average is coincidentally sitting right at the 1396 area so that could be some serious resistance.                                               Chart provided courtesy of www.decisionpoint.com  I had hoped to play this rally for a quick gain with the intention of getting out quickly, but the early 200-point gain on Tuesday was too much upside for me to risk getting in.  Had I pulled the trigger I would have been able to capture yesterday's gains, but with resistance so close at hand now, plus the holiday seasonality data, I don't see the risk / reward being favorable at this time.  If we do get a move above 1396, it will be time to buy any pullback with the thinking that we could be in for at least an intermediate-term rally rather than a small 2% to 5% stint. Let's talk a little strategy.  For arguments sake, lets assume many of you are abiding by the monthly 2 to 3 transfer limit.  If you are on the sideline in the G-fund, and have been since the beginning of the month as I am, you still have your 2 to 3 transfers left.  If you were to buy into the stock funds now for transfer #1, your next transfer (#2) could be a move into either the F-fund or to the G-fund.  If you decided to go into the G-fund, you are done for the month.  If you go into the F-fund, you'll be able to make a 3rd transfer into the G-fund before the month is up. If you are sitting in the G-fund and decide to make your 1st transfer for February into the F-fund, you can make your second into the stock funds and still be able to move into the G-fund before month's end. The situation I did not want to get stuck in was buying stocks early in the month for my 1st transfer, then being sent packing back to the G-fund because of a failed rally.  Then I would not be able to buy into the stock funds again until the following month as I would have used up 2 transfers.  Remember, after 2 transfers you can only move into the G-fund. So, the TSP is tying our hands and the strategy for timing is being kicked up a notch.  We don't want to act hastily on emotion and use up our transfers.  That is why I keep looking to the charts for breakouts, a change in trend, support, etc.  Speaking of the F-fund, the AGG is back down toward the 50-day moving average, which has been a decent area to be a buyer.  As I mentioned above, if you haven't used up any transfers, going into the F-fund here could give you some upside potential while keeping your powder dry in case the stock market does confirm an intermediate-term bottom.                                     Chart provided courtesy of www.decisionpoint.com  I don't want to wave the white flag just yet on theses proposed trading limits, but judging by the number of emails I get on the subject, many of you are not wanting to play any games with testing the limits.  Some have told me they will test the waters to see what happens if they go over three.  Some have not changed their trading habits at all.  I just want to proceed as if most of you are slowing down your trades based on the proposal.  That is probably smart, but the fight is not over yet so don't completely give up.  I am still supporting the efforts of www.tspshareholder.org because as our T-shirt slogan says, friends don't let friend by and hold. Bottom line:  The market is acting well but must prove itself.  I am still proceeding cautiously.  I know the Ebbchart System picked up some nice gains calling the recent bottom pretty well, but I don't know how long it will stay in stocks.  Additionally, Trader Fred's system has not fully embraced this rally; for the short-term, anyway.  It is a tough call. That's all for today.  See you back here tomorrow. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us.