Today's Comments (Short Term Outlook)                             Printer friendly

Will a test pass or fail? I am sure you have heard by now that stocks took another beating on Friday with the Dow dropping 315-points, and all of the major indices losing 2.5% to 3% on the day.  Does this mean we will be seeing a test of January's low? The S&P 500 made an intraday low of 1270 in late January.  With it currently trading at 1330, that would mean any test of that low would equate to a loss of at least another 4.6% in the index.  Since the TSP only gives quotes based on closing prices and not intraday data, the low price for the C-fund price is based on the lowest closing price of the S&P, which was 1310.  The C-fund closed at 14.79 on that day so with Friday's closing price of 15.06 per share, the C-fund is actually just 1.8% away from the lowest close.  A test of the lows is subjective - depending on if you look at closing data or intraday data.  No one in the TSP was able to buy into the funds when the S&P hit 1270, but rather 1310 (C fund @ 14.79) was the best you could have done.                                   Chart provided courtesy of www.decisionpoint.com Why does it matter?  It may or may not.  It depends on a few things.  If the S&P 500 wants to play clean, we'd want to see it fall to, and hold, 1270 on any more weakness.  That would give us a nice visual on the chart of a double bottom.  That would be a psychological benefit as a possible self fulfilling prophesy for those waiting for a test and a double bottom before getting in.  If we see a rally off of 1270, you should see some sideline cash going to work.  If 1270 does not hold, we would want to watch the close.  If we get a panic / capitulation like sell-off that goes below 1270, but we see a rally later in the day where the S&P 500 closes above 1270, that could be considered a successful test. We'd just have to watch how the following days play out. If the S&P 500 falls below 1270, and closes below that level, 1270 could act as resistance on the way back up, and that would be an obvious problem.  We would be in for another leg down. Many of the indicators are oversold, but nothing extreme yet, meaning there is some room on the downside.  Sentiment is of course very bearish, but with oil near $103 a barrel, gold now over $970 an ounce and may other commodities running up as well, and the dollar continuing to spiral down, it could get worse before getting better.  From a contrarian view, that would be a positive for stocks.  We haven't seen sentiment this low in a long time, but we also haven't seen an economic environment like this in a long time. Bonds jumped up again on Friday and while those in the F-fund have made good money over the last week, I am a little worried about the continuous evidence of inflationary pressure, which is not a good environment for bonds.  The Fed is going to cut rates again, that is a given, but how low can they go with inflation becoming more and more of a concern? This week's economic calendar includes the ISM Index this morning, the ISM Services (non-manufacturing) on Wednesday, and the all important jobs report on Friday.  The ISM Services report caused quite a stir last month by coming in much lower than estimates and sending the market for a tailspin.  So we could see some fireworks again this week. The folks at TSPshareholder.org have issued a new newsletter comparing transaction costs of the TSP to that of mutual funds. -  How Does TSP Compare? TSP interfund transfer costs are lower than mutual funds -  Please have a look and share it with your co-workers. One more administrative note:  If you haven't noticed, I have added links to a new Site Map page for TSP Talk.  I thought it might make navigating through the site a little easier. That's all for today.  See you back here 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.