TSP Talk - Thrift Savings Plan Strategies

Market Comments

May 3, 2010

Current TSP Share Prices

Today's Commentary (Short Term Outlook)

Buy the dip, or abandon ship?

Stocks fell sharply on Friday as the Dow lost 159-points after a weaker than expected GDP report, and continued debt concerns for European countries. There is a lot going on in the U.S. and around the world right now and the market rally is being tested for the first time in several months.

Friday was the third sharp sell-off in the last 11 trading days possibly triggering a change in character for the market. For the last several months, buying the dips has paid off. Is that what we have here, or is this a warning?

Greece got its bailout yesterday, so today's trading will tell us if this means anything to us. So far the overnight futures are only slight positive on the news, but there is so much happening right now, investors are probably going to have a hard time deciphering the news. Combine the Greece situation with the other European countries that are struggling, the NYC bomb attempt over the weekend, the oil spill and its ramifications, the immigration problems, the Goldman Sachs and Wall Street vs. the government, etc., etc., and there is a lot of uncertainty brewing out there.

For the TSP funds, the C-fund lost 1.37% on Friday, the S-fund dropped 2.25%, the I-fund gave up 0.40%, while investors opted for safety in bonds as the F-fund gained 0.24%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up.

Volatility and volume are picking up in the market, and the action in the S&P 500 has been less consistent over the last few weeks. It remains above the 50-day EMA, which is important since the dip buyers may still step up should the the S&P remain in an uptrend and above the 50-day EMA.


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

There was concern over the weakness in the banking sector but this banking index is not only still trading above its 50-day EMA, but it also remains above its 20-day EMA (which is currently 55.33).

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

The Dow Transportation Index remains within its ascending trendline, and like the other indices, it is either at a nice place to buy at the bottom of the trading channel, or is about to breakdown. Again the higher volatility is a concern and could be indicating a top may be starting to form.


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

The NYSE shows a rounding top forming and it really needs to stay above 7500, and probably then break above 7600 to keep the upward trend going.


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

As I mentioned in the TSP Weekly Wrap-up, market tops do not tend to make a high and roll over. They take time to form. Below is how the bull market ended in late 2007. There was a big scare and technical breakdown in July and August of '07, but the market rallied to new highs in October, sucking many investors right back in before the actual peak.


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

Volatility is picking up again as the VIX moved over 22 last week. It has gotten much higher in the past, but these spikes have led to buying opportunities over the last year.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Again, we have to be cognizant of the possibility that this dip is different and it could be a change in character for the market. We don't have any evidence of that just yet, but the warning signs are starting to add up.

After bouncing off of our initial target of 3.68% last Wednesday, the yield of the 10-year T-Note has fallen back down and is now flirting with hitting our second target of the 200-day EMA near 3.6%.

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

I would be surprised if rates moved much lower than that (3.6%) but if stocks do roll over here and the bull market runs out of steam, investors could jump into bonds sending yields lower, and the F-fund higher. We'll have to keep an eye on what happens if it approaches 3.6% this week.

After Thursday's rally I was a little surprised to see how bullish our readers were considering the sharp 200+ point decline just a couple of days earlier. The 1.18 to 1 bulls to bears ratio last week put the TSP Talk Sentiment Survey system back into a sell signal for this week, after a one week buy signal that did not work out too well as the stock funds were down last week. Perhaps we are getting a little too fickle?



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

Tom Crowley

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