TSP Talk - Thrift Savings Plan Strategies

Market Comments

July 20, 2010

Current TSP Share Prices

Today's Commentary

Low yields and chart breakdowns

After Friday's 2% to 3% sell-off, stocks rebounded modestly yesterday, but not enough to repair the recent technical damage done to the charts. The Dow gained 57-points.

For the TSP funds, the C-fund gained 0.60%, the S-fund picked up 0.52%, and the I-fund added 0.45%. The F-fund (bonds) slipped 0.08%.

The S&P 500 rallied up to the 20-day EMA and that resistance area is the least of its worries at the moment. The descending trendline is now near 1085 and the 50-day EMA is at 1092. I believe capturing both of these levels will not be easy without a major news driven event.

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

One indicator that I have been watching for signs of bullishness is the Rydex Cash Flow Ratio. Here is a long-term view but the fact that it is at the lowest levels (most bearish sentiment, thus bullish for stocks) since 1999 made me a little concerned that this indicator is not going to be reliable. Why would it be more bearish now than during the bear markets of 2007-2008 or 2000-2002?

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

Then I saw the Rydex Asset ratio, which seems more believable. The current levels are low, but both prior bear markets produced lower readings, and that makes more sense.

                        Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We haven't talked about bonds in a while. It was back in early April when I first said that the yield of the 10-year T-Note may have a hard time getting getting over 4.0% on its first attempt. I figured we might be able to make a little money in the F-fund should the yield pull back (Bonds and the F-fund go up when yields fall.)

Fast forward 3 and a half months and it is now below 3.0%. I never would have guessed it would have fallen this far.

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

But how much lower can it go? We actually saw lower yields in early 2009, but of course the economy was in rough shape back then. Is this push lower a sign that the economy is not going to recover any time soon? It certainly means something, and unfortunately it may not be good news. Once yields start rising it will be a better sign of things to come. Until then, it appears to be part of the warning signs - along with the breakdown in the major stock index charts.

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

Tom Crowley

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