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Market Comments

July 22, 2011

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Today's Commentary

Testing the upper range

Another nice rally on Wall Street yesterday, after the one day pause on Wednesday. The Dow jumped 152.5 points; Its second triple digit gain of the week despite being less than two-weeks from a possible U.S. default. The market seems to always keep us guessing.

For the TSP, the C-fund gained 1.36% yesterday, the S-fund was up 1.00%, the I-fund jumped 1.72%, and the F-fund (bonds) was down 0.20%.

As you probably know, I have tried to keep my head out of the headlines and let the charts guide the way. If we based our investment and trading decisions on the news and economic data, we would probably all be sitting in a bunker somewhere right now. But the charts have been telling a more positive story and the strong earnings coming out have justified the recent bullish chart formations.

The S&P 500 is reaching toward new highs, but it is at the upper end of its 6-7 month trading range. Volume was strong on yesterday's rally, and the PMO is turning up and remains on a buy. I don't have too many reasons to believe the market is in any trouble, although there are a few, and of course the headlines still have the ability to shake things up in the short-term.

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

I like the setup for an eventual breakout but there are a couple of indicators that are showing some negative signs for the short-term. Also, I usually don't mention this since we have paying subscribers, but every one of out premium services is in a defensive allocation right now. That rare and it seems every time attempt go against that flow, I pay the price.

The TSP Talk Sentiment Survey came in at 54% bulls, 34% bears, for a bulls to bears ratio of 1.59 to 1. That is a neutral reading so the system's allocation remains 100% S-Fund for next week. The system is up 9.68% for 2011 through Thursday's close.

This chart is a bit old but it does represent 56-years worth of data. You can see that August is a coin flip when it comes to gains or losses, and that makes it the 3rd worst month historically.


                                      Chart provided courtesy of www.sentimentrader.com
And the first half of the month is worse than the second half, although the end of the month isn't great either. (This chart data is more current.)

                                      Chart provided courtesy of www.sentimentrader.com

I am on the sidelines starting today but I do have an IFT left in July and I won't be shy about jumping back in stocks should we get a little pullback. Of course being invested heading into the August 2nd debt ceiling deadline is certainly a gamble and seeing the historical weakness of the first week of August makes me leery. But I think seasonality can be thrown out the window right now as the market is at the mercy of the debt ceiling negotiations, the European bailouts, and earnings. It's tough to call, but when in a bull market, expect the end result to be bullish. To me that means buy the dips.

Thanks for reading!   Have a great weekend!

Tom Crowley

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