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New highs

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New all-time highs in the Dow had the media falling all over themselves yesterday, after weeks of talking about it. The good news is, it's out of the way and and investors can stop focusing on it and get back to real analysis.
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If I sound a little bitter, you are perceptive. That's typical for me, though. I try to be a "buy low, sell high" kind of trader so I am usually out of the market when we're hitting new highs. I'd prefer to buy pullbacks. Once again, the trend and the buy and holders are the winners - for now.

The S&P 500 made a new 52-week high, but it is still a couple of percentage points away from its all time high.

Chart provided courtesy of, analysis by TSP Talk

The old narrow trading channel above (red) is back in the picture, this time with the lower end support line of the channel possibly being resistance. But of course that resistance line is rising so its a moving target.

This longer-term chart shows a couple of things - besides that I was completely wrong about 1525 being the top. One thing that I have looked at over the years is that the S&P 500 doesn't tend to go much more than 115 to 125-points above the 200-day EMA before it starts to look for a pullback. It's probably more of a percentage thing, but it's easier to display using lines that are xxx-points, in the case below, 125-points.

Chart provided courtesy of, analysis by TSP Talk

I put the 125-point lines on the older chart below as well, which goes from September 2009 through the end of 2011. Back then I was probably using 115-points but since the S&P is a couple hundred points higher now I'll stay consistent with 125.

Chart provided courtesy of, analysis by TSP Talk

Another thing we have been saying is that tops don't happen overnight. They take time to develop and sometimes there is a series of peaks within weeks or a couple of months like we saw twice in 2012. I showed those in the top two charts with the red rectangles.

A quick check of a couple of other major indices shows the Nasdaq also made a new high yesterday, as did the Transports (not shown), and we have a new open gap on the chart. Possibly an "exhaustion gap."

Chart provided courtesy of, analysis by TSP Talk

The small caps have not made a new high yet.

Chart provided courtesy of, analysis by TSP Talk

The NYSE overbought / oversold indicator is back above the +500 overbought level, but bull markets can easily see +750 or even +1000 readings so this is just mildly overbought for now.

Chart provided courtesy of, analysis by TSP Talk

So the current new high in the major indices is bullish and may produce a little more short-term gains, but the fact that the market is extended in many ways, I think we're seeing a top form and the upside gains may be limited, but it could be weeks before we call a top officially.

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

Tom Crowley

Posted daily at TSP Talk Market Commentary

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  1. JTH's Avatar
    Great observations on the 200EMA Tom. Today we hit a new high at 9.14% above the 200 SMA. The previous 2 major tops were 9.32% on 9/14/2012 & 10.36% on 4/27/2012 both of those instance marked major 4-month tops.
  2. DCRanger's Avatar
    Tom - As always, excellent analysis. Your column is always my first TSP read of the day. Thanks!
  3. JTH's Avatar
    Not me, I save the best for last, your column is the last thing I read.

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