TSP Talk - Thrift Savings Plan Strategies

Market Comments

February 2, 2010

Current TSP Share Prices

Today's Commentary (Short Term Outlook)

What did the rally mean?

A nice rebound for stocks on Monday, and a good start to February. The Dow gained 118-points on the day and for the TSP stock funds; the C and S-funds were each up 1.43%, and the I-fund gained 1.66%. The F-fund was down 0.15%.

There was a very positive ISM report, but we sold off on Friday after a huge GDP report and we've seen "sell the news" reactions to good earnings reports, so I am not so much interested in the news or economic report results, as much as I am in how the market is reacting to news right now. Seeing the market go up after a good report is a good sign, but that's just one.

The S&P 500 did make its way above one of the previously broken support lines, which is another plus but again, one day does not a trend make. We figured that we should be seeing some kind of an oversold bounce in the short-term. The bigger question has been whether or not a rebound will last or just be temporary.

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

Looking at the chart, I see that the small gap that was left open between 1071.48 and 1072.31 back in November, was basically filled at Friday's low. I always like to see some sort of reason for a turnaround, and while filling a 1-point gap isn't a spectacular technical accomplishment, it is something.


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

I have mentioned on occasion that one of the oversold indicators I use is when the 20-day EMA moves down to the 50-day EMA during a bullish trend. Even if the market is about to turn down, when the 20-day EMA is above the 50-day EMA, and it touches or falls below the 50-day EMA for the first time in a few months, it is generally a good indication that at least a short-term rebound is coming. We saw it several times between 2004 and 2007, and if you look at the top S&P chart above again, you will see that it is basically happening now.

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

Whatever is going to happen, be it a big rally or another push lower, don't expect the market to make things easy. Back in mid-October to early November we saw the S&P 500 fall from about 1100 to 1030. On 10/28 the Dow dropped 120-points. On the 29th we saw a 200-point rally. It looked like the bottom might be in. Then on 10/30 it tanked 250-points again.


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

That was quite deflating for the bulls, and the bearish sentiment at that point was probably pretty high. No one was going to get fooled again by those rallies, right? Well, of course that 250-point loss was the low before the next leg higher began. A painful lesson for any bull who gave up on October 30 and sold.

I have no idea how it is going to play out this time. My point is that it will likely be an emotional rollercoaster, whatever happens. That's why I mentioned yesterday that you might want to make your plan beforehand, because if you try to make your decision while on that emotional rollercoaster, you might be the one screaming like a little girl.

sentimeTrader.com's intermediate-term indicator score hit 145 on Friday. Exactly how the 145 figure is determined I don't know, but it is a very high reading historically, and is in the area of being very oversold.


                                Chart provided courtesy of www.sentimentrader.com

"The table below shows all instances of the Score crossing that 145% threshold since 1999, along with the S&P 500's performance over the following month."



All six times the market was higher a month later, but there were some serious draw downs along the way in 4 of the 6 instances.

Yesterday was a good day for stocks, but don't get too comfortable yet. This market is likely to throw us a few more curves. The indicators are telling us we are due for a bounce but we'll have to keep an eye on the resistance levels and EMA's to see if it will be anything more than an oversold rally.

Thanks for reading. We'll see you back here tomorrow.

Tom Crowley

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