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Market Comments

February 25, 2011


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Today's Commentary                                                         
Late rally helps

Stocks were mixed yesterday as the Dow lost 37-points, the S&P 500 slipped a point, but the Nasdaq, small caps and the Transportation Index were up.
                                  
For the TSP, the C-fund lost 0.08% yesterday, the S-fund gained 0.27%, the I-fund dropped 0.35%, and the F-fund (bonds) gained 0.18%.   

I have mixed feelings about the action in the market today.  After 2 sharp sell-offs you'd like to see a snap back rally on day 3 or 4.  We did not get that yesterday, but a late rally took the indices well off of their lows with a few closing in positive territory.  Perhaps the afternoon rally was the start of something positive but it really needs some giddy-up pretty quickly, or we could see investors throw in the towel. 

                          

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

By the way, the late rally was triggered by rumors that Gaddafi had been shot and it sent oil prices down and stocks higher.  If that turns out to be false, we could see that action reverse today.
                                    
We are due a some kind of relief rally and I believe there will be big clues for us in that rally (assuming we get it.)  During a bull market, the pullbacks bottom and the upward trends quickly resume.  In a bear market or a more serious correction, the rallies will find it difficult to get back over the old support and it becomes resistance.  That means if the S&P cannot break back above the shorter-term support line (the bottom line of the blue trading channel in top chart) or the 20-day EMA, we may want to get a little more bearish.  That is a possibility but as you'll see, investor sentiment may already be overly bearish.  

Not surprisingly, investor sentiment sank sharply this week.  The AAII Investor Sentiment Survey (not our survey) came in at 37% bullish, and 36% bearish for a ratio of 1.03 to 1.  That is the most bearish ratio since the market lows in August 2010. 

                         
  

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


The move in that ratio from 4 to 1, to 3 to 1, to 2 to 1, to 1 to 1 in a 10-week period, shows just how pessimistic investors have become despite the indices making a new high just 4 days ago.

The TSP Talk Sentiment Survey had been relatively bearish as well over the last several weeks and the bearishness rose again this week.  The bulls (38%) to bears (52%) ratio of 0.73 to 1 is another buy signal so the system's allocation remains 100% S-Fund for next week.


Tuesday we start trading in March and historically March is above average, but not great.  The top chart is old data but it does span 56-years. 

   
 

                                 Chart provided courtesy of www.sentimentrader.com

It's interesting to note the returns of the S&P 500 on the first trading day of the month over the last three months.

December: +2.16%
January: +1.13%

February: +1.67%
March: ??


Thanks for reading!  Have a great weekend!

Tom Crowley
Click here to discuss today's Market Commentary
 

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