TSP Talk - Thrift Savings Plan Strategies

Market Comments

July 19, 2010

Current TSP Share Prices

Today's Commentary

Downtrend resumes

Stocks plummeted on Friday after a very weak Michigan Consumer Sentiment report. I don't know if that was the exact reason for the decline as was suggested, because Japan's Nikkei was down about 3% the night before (prior to the sentiment report). The Dow lost 261-points on the day.

For the TSP funds, the C-fund lost 2.88%, the S-fund dropped 3.39%, and the I-fund fell 2.91%. The F-fund (bonds) gained 0.15%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up.

Friday's action was awful for the technical picture. The resistance and 3-day flat-top formation was too much for the S&P 500 to handle and the index cracked rather than breaking out. After 3-closes above the 20, 50, and even the 200-day EMA's, the index plummeted back below all three, and with the 50-day EMA below the 200-day EMA, we have to be prepared for a bearish outcome.

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

The recent swings have whipsawed many of us but seeing the resistance hold actually gives me a better sense of relief. When the market does what is "supposed to" it is so much easier to try to figure things out. If you remember, we had an early sell-off on Thursday as well, pulling the S&P below the 200-day EMA and away from the resistance line, but a very late rally that day took the index back above the 200-day EMA, fooling the bears, and giving hope to the bulls - but that proved to be short-lived.

The Dow, the Nasdaq, and the Dow Transportation Index have all joined the S&P 500 and closed back below their 200-day EMA's - A very bearish sign.




                        Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The dollar has now pulled back to the 200-day EMA after breaking the bullish support earlier last week, so it will be interesting to see how this plays out. If the dollar / euro / S&P 500 coorrelation continues, stocks could see more weakness if the dollar does find support here at the 200-day EMA. If the dollar falls below the 200-day EMA, we could get another push higher for stocks.

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

The I-fund has benefited greatly from the recent weakness in the dollar as it easily outperformed the C and S-funds in June, and is still up over 6% in July alone, despite the nearly 3% loss on Friday. But could that edge be coming to an end?  I do want to note that the dollar was down on Friday, and the euro was up, which is not what we have seen when the stock market is down lately, so perhaps the correlation is decoupling?

I've mentioned the Rydex Ratio indicator a few times last week as it is still showing excessive bearishness from the dumb money, and this may be the saving grace for stocks. The market needs bulls to turn into sellers to keep a decline fueled so if the dumb money is very bearish, there may not be enough investors left to sell. Also, the OEX put/call ratio is showing signs that the smart money is getting bullish. These are just 2 indicators and should not override everything we are seeing, but if stocks do rally this week, these indicators would have smelled it out. But the writing is on the wall with the moving averages, the descending trend, resistance holding, etc., so I am not going to try to be a hero. I'm playing defense as this market appears to want to resume the downtrend.

The TSP Talk Sentiment Survey came in at 43% bulls, 43% bears for a 1.00 to 1 ratio. That 1 to 1 ratio keeps the system on a sell signal for this week as we stick with the bear market rules (50-day EMA still slightly below the 200-day EMA.)

The AAII Investor Sentiment Survey was showing positive signs a couple of weeks ago when the "dumb money" was very bearish (57%, with a bull/bear ratio of 0.37 to 1) and we got our bear market rally. This past week (Wednesday) the new survey results were posted and they came back at a much more neutral level of 1.03 to 1, very similar to the TSP Talk survey results.

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

That took away the bullish advantage for the market but it did help us take advantage of that bear market rally. Now it looks as if that may be over.

If the S&P 500 can rally back above the 200-day, and many of the other negative chart actions fall back into a more bullish place - and as we said, some indicators are trying to push us that way - then I will be willing to join the bull camp again, but until then I will feel better waiting on the sidelines. Plus, I am out of IFT's in July so I hope the market does not turn around too quickly.

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

Tom Crowley

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