For the week, the C-fund was up 0.10%, the S-fund lost 0.17%, and the I-fund was down 0.94% as the dollar rebounded on the weak economic news coming out of Europe. Bonds (F-fund) were flat, and the G-fund was up 0.05%.

Looking at the chart of the S&P 500, we have had many warning signs that a correction could be brewing. We saw the S&P 500 drop below the 20-day EMA, then the 50-day EMA.  We saw the rising trend lines broken, and then saw the 20-day EMA fall below the 50-day EMA.

Normally we would be seeing some oversold rallies at this point, but this market stubbornly refused to give any relief, except for an occasional one day bounce. That has been the frustrating part for any market timers looking for an opportunity to sell strength during this correction. We just haven't seen the rebounds despite the indicators suggesting we should.

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

On the positive side, the recent correction (A correction is actually defined as a 10% pullback from the highs, and we are not quite there yet) is running into some strong support and how the S&P 500 handles this support could determine if this correction in this bull market is actually going to turn into something more serious, i.e. a bear market.
                          
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I've drawn in two trend lines that should act as decent support, and they are in the vicinity of 1240 to 1260, and of course the 200-day EMA is sitting near 1263. This should give the market some cushion but as I said, should the S&P 500 cut below these levels, it will be time to take a much more defensive stance.

A defensive stance to me means moving from a "buy the dips" mentality where you might err on the side of being too bullish, to a "sell the rallies" mentality where you want to avoid being overly aggressive. We are not there yet.

The TSP Talk Sentiment Survey came in at 33% bulls, 56% bears, for a bulls to bears ratio of 0.59 to 1.  That is a buy signal so the system's allocation remains 100% S-Fund for this week.  The system is up 2.44% for 2011 through Friday's close.

The futures are looking pretty negative as I write this Sunday night.  Hopefully we will see some kind of capitulation selling this morning that brings on a much needed, and long overdue rebound.

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