TSP Talk - Thrift Savings Plan Strategies

System buys, smart money sells

The S and I funds continue there relentless moves higher but the early rally in stocks lost some if its steam by the afternoon, but the bears couldn't keep the pressure on and we got a late day bounce.

I know I appear to be in denial about this current rally, and it just got worse. Trader Fed had said there was a strong possibility we would see a buy signal soon and he was right. The TSP Trader System did give a buy signal after yesterday's close as one of the sub-models moved to a buy. That's all the system needs; one of the 12 current sub-models to be in a buy and the system moves to a buy.

Here's Trader Fred:

Submodel C has given a Buy signal. That means the system will be moving from the G Fund to the following allocations: C Fund (25%), S Fund (40%) and I Fund (35%) effective close of business Thursday 2/08/07.

The three waves of the Submodel C wave chart have finally reached the point where they are reinforcing each other enough to generate a Buy signal. There is no assurance that this reinforcement pattern will continue. Historical testing of this wave reinforcement pattern has shown on the average the value of the C, S, I Funds usually increase, but sometimes they decrease.

- Trader Fred

This leaves me scratching my head. Sure, how much more could it surprise me that the market may move higher? It has gone on for a long time. But I wanted to put things in historic proportion in regards to why I can't get over the fact that the market is due for a dip.

Below is the 10-day moving average of the OEX put/call ratio. I have shown this many times before but I wanted to show you where it is in comparison to other periods going back almost 20 years.

The OEX put/call ratio is in green below. The CBOE put/call ratio is in purple. What's the difference? The OEX put/call ratio is considered a smart money indicator while the CBOE is a dumb money indicator. Notice how the smart money tends to move counter to the dumb money. An extreme example shows itself at the beginning of 2000. The dumb money was betting heavily on the market while the smart money was getting very defensive, even though things couldn't have looked better for the market. Everything was moving up at the time. Of course that was the beginning of one of the worst bear markets in history.

Chart provided courtesy of www.decisionpoint.com

Now the smart money is at a level not seen since that bear market period. Not that I expect a bear market, but either the smart money has turned dumb, or we are going to be seeing a breakdown in stocks in the near future. The dumb money isn't as bullish as it was in 2000, but it has been rising since the bottom this past summer while smart money keeps selling.

If you are on our email alert list you know that I moved to a 100% F fund allocation yesterday as bonds did break through the recent downtrend and might be starting another leg higher. Also notice the PMO indicator above just gave a crossover buy signal.

This F fund can be frustrating so I wouldn't be surprised if it did move down for a day so after the recent breakout, but as long as the AGG stays above the low made the other day, I may stay here instead of the G fund. I sure received a lot of interesting comments via email. Most likely from people on the email alert list who do not read this daily commentary.

Chart provided courtesy of www.decisionpoint.com

So, have we got your head spinning yet? My active account is 100% in the F fund. The inactive long-term account is 75% in the stock funds. The TSP Trader System is now 100% in the stocks funds, and RevShark and the TSP Timing Newsletter is something completely different.

This has been a difficult market to trade to be sure, and only those brave enough to stay the course in stocks the entire time, in spite of all of the negatives being thrown at them (there are also a lot of positives), have reaped all of the rewards. Some of these people have been emailing me with advice lately, telling me that I apparently don't know what I'm doing. Maybe they're right. But I'm starting to wonder who really does? Obviously the smart money doesn't.

That's all for today. I am currently 100% in the F fund. See you tomorrow.

Administrative note: I may be interested in sponsoring a softball team from the Washington, DC, N. Virginia, or the S. Maryland area, if the right situation presents itself. If your team might be interested, please send me an email with some information (how many players you have, where you play, what league, how long you've been together, how many games you plan to play this year, your record last year, etc.). If I'm interested, I'll fill you in on what I can offer. Thanks.