TSP Talk - Thrift Savings Plan Strategies

The Fed surprised no one yesterday when they left the Fed Fund Rate at 5.25% for the seventh straight meeting. The message was basically unchanged from the last policy meeting as well. Bonds sold off as continuing concerns over inflation left the chances of a future rate cuts in jeopardy. Stocks didn't seem to mind as they battled back from the initial downside knee-jerk reaction to finish the day deep in the green once again.

The rally has been relentless and the trading channel is getting squeezed. Can stocks continue this pace or will we finally see a break in the action and get a chance to buy? Is it possible that the S&P 500 can break out to the upside of this recent parabolic uptrend? Unlikely, but would anything surprise us at this point?

Chart provided courtesy of www.decisionpoint.com

This is very frustrating for those of us waiting. I just can't see buying right here, but of course it is tempting. Usually when I am tempted, the bottom is about to fall out. Since I have painted myself into a corner seemingly unable to get myself out, I have decided that I have to take the emotion and guess-work out of it and rely on Trader Fred's next buy signal to make the call for me. I admit, I have been on the sidelines too long to make a rational decision.

Here's what trader Fred is saying now:

UPDATE: Close of Business Wednesday, May 9, 2007

The first image shows the C Fund’s Gain-Strength chart. This chart shows what the S&P 500 (C Fund) is doing when there are no Submodel trades. The market weakness is still increasing (heading downward). The amount of C Fund gain increased today and continued the previous pattern. This means the market conditions driving the S&P 500 stocks (i.e., the C Fund) are in decline.

The second image shows the overall market strength (blue line) is below the green line. That means the market has entered a time of market weakness. This chart is a leading indicator of the market’s behavior by at least week or more. In general, it is difficult for the black line (C Fund) to move up when the blue line (market strength) has been flat or is sloping down. The vertical location of the black line has no relationship to the vertical location of the green or blue lines, whose scale is on the left. The C Fund (black line) scale is on the right.

-- Trader Fred

I am still in the camp that the herd is just too bearish for the market to see any significant selling. Every dip, no matter how small, has been bought lately. Eventually that will change but it may not be until we see that bull bear ratio move back towards 2 to 1. I am waiting for the new AAII Investor Survey Sentiment results as I write this. Is it possible we will still another week with 50% or more on the bearish side? That would be very hard to believe but would again tempt me to jump in for a spell. I just know that the downside can be quick and painful when it comes and it could take two days to get back out.

The overbought/oversold indicator is slightly overbought but heading down slowly. Not much help there. We are seeing a pick up it put (options) buying from the smart-money OEX options traders but that didn't give us much help last time. The dollar closed at its highest level in a month and oil was down 0.77 on the day.

The AAII survey has just been posted and it's a dead heat. 43% bulls and 43% bears. Even though it is a more reasonable reading than last week's 29% bulls, 54% bears, it's still a bullish reading for stocks. No where near the 2 to 1 ratio or higher that you'd see near market tops. Again, this is closer to a buy signal. Confusing times.