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Market Comments

February 18, 2011

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Today's Commentary

This isn't typical

Stocks moved higher again yesterday as the Dow picked up another 30-points, while the broader market indices saw modest gains.

For the TSP, the C-fund was up 0.32% yesterday, the S-fund gained 0.55% and continues to outpace the other funds, the I-fund gained 0.26%, and the F-fund (bonds) was also up 0.25%.

Someone asked me yesterday what makes the current market atypical compared to a "typical" market. Good question. Thanks Adrian!

The current market has been moving steadily higher with very few pullbacks, let alone corrections. A correction is considered a 10% decline from the highs. We have not had a single 5% pullback since the current rally started in early September. We saw a minor 4% pullback in November, but that is it. This makes it very difficult for market timers and investors, who are waiting for a pullback to buy, to have an opportunity to do so. Every 1% to 2% decline has quickly been bought up.

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

That is not normal and this is not a market environment for a market timer. This is a buy and hold investor's market.

A more typical bull market will move up and down with a general upward movement. The market gets overbought, sells off some, finds support at trendlines and / or the three main moving averages (20, 50, 200) and if done right, market timers can really do well (or do poorly if done wrong.)

In 2004 - 2005 we saw a typical bull market. This is the reason why many of us use indicators to try to side-step weakness, and buy pullbacks and corrections.

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

At some point we will be in a more typical market, but the type of bull market that we are in right now, does not usually die overnight. Volatility will eventually pick up and we'll probably have several months of up and down action before any kind of top is put in.

Thanks again for the question, Adrian. I have really been struggling to come up with something interesting to talk about during this positive, but dull, action.

The TSP Talk Sentiment Survey came in at 50% bullish, 37% bearish for a bulls to bears ratio of 1.35 to 1. That is neutral reading in a bull market. So, the Sentiment Survey System's allocation will remain the same for next week at 100% S-Fund.

Another reminder that we have a holiday on Monday and the trading surrounding President's day isn't as positive historically as most holidays.

                             Chart provided courtesy of www.sentimentrader.com

Thanks for reading! Have a great holiday weekend!

Tom Crowley
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