Today's Comments (Short Term Outlook)                             Printer friendly

Bear market rules The market is in a downtrend, and arguably, in a bear market.  During a bull market the rule is to buy the dips and/or oversold conditions.  But now that we are in a downtrend you don't want to do that.  Instead, you want to sell strength and/or overbought markets, if you haven't sold already. Yesterday we talked about the NYSE overbought / oversold indicator being neutral after falling from an overbought reading.  We said that since the very short-term readings were oversold, we could see an intraday rally, but that it is likely to fail.  The market didn't make a liar out of me for once, as the early 125-point rally started to retreat just before lunch time, and did not let up ending down 65-points.          The bears are in control and will be selling strength as long as it keeps working.  Sure, there are value investors who are doing some buying during these sell-offs, but as I mentioned yesterday, if you decide to do that, do it in small increments.  We are not picking individual stocks that may be undervalued, but rather an entire index so the valuation is not cut and dried.  Some stocks will continue to move lower while others may have bottomed.  Cash and bonds are king while the stock indices' technical picture is in poor shape.  Maybe the fundamentals are not bad enough to warrant a major decline, but the chart is telling us what is going on, and the market can move lower (or higher) than would seem reasonable. Something is up and we should heed the warnings.                             Chart provided courtesy of www.decisionpoint.com  OK - enough bear talk.  With the new transfer rules still looming, I want to talk a little about the possibility of moving some money into an IRA rather than into the TSP - whether you prefer a Roth or traditional IRA.  I have been considering  it myself since IRA accounts can be more flexible and have more investment options.  I know the TSP wants us to put our money in the L-fund and forget about it.  I just can't do that.  If limits are imposed I will look for alternatives.  If this is something that may be of interest to you, here are some things to know/consider: A traditional IRA will be paid with pre tax dollars just like your TSP.  You do not pay taxes on this amount until you withdraw it.  Any gains made will also be taxed upon withdrawal. A Roth IRA, on the other hand, is paid with after tax dollars; meaning the amount is already taxed before you put it into your IRA, but when you withdraw from your account upon retirement, the entire amount, including all of the earnings made in the account, are not taxable. If you are eligible for TSP matching contributions, you'll want to make sure that you continue to contribute at least the maximum amount to the TSP that is being matched by your agency - usually 5%.  For simplicity sakes, let's say you make $100,000 a year and are in a position where you can contribute the maximum, $15,500 into your TSP this year.  You can choose instead to put $5000  into an IRA account in 2008 (up from $4000 in 2007), and cut your TSP contributions to $10,500.  You can actually do both, but let's say this is all you choose to save.  If you are 50 years of age or older, that maximum amount moves up to $6000. There are other considerations such as married couples can double the amounts, even if your spouse does not work, as long as they are in separate accounts.  There are income restrictions where the maximum amount is phased out if you are already in a plan at work, which I assume you are (TSP). One thing to point out to those leaving, or thinking of leaving their government job prior to retirement;  You may not want to move all of your TSP balance into an IRA account.  The reason is that the TSP and 401K programs allow you to withdraw your money out prior to the age of 59 1/2 under certain circumstances such as purchasing an annuity where you can take out money provided it is in "substantially equal payments."  If you have it all in an IRA, then the 59 1/2 age requirement is enforced.  I am not an expert by any means so please contact a financial advisor before taking any action.  The S&P 500 and Nasdaq futures are deep in the red Wednesday night after Cisco reported a fair earnings report after the close, but guided lower for the current quarter saying it is "challenging" out there.  This should give us a negative open today.  Is another reversal in the cards? That's all for today.  See you 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.