TSP Talk Blog

09/23/11

Stocks opened sharply lower yesterday and never really could get any footing although the Dow was able to close 137-points off of the low. But I guess that's not much consolation considering the low was a loss of 528-points.



For the TSP, the C-fund dropped 3.14% yesterday, the S-fund fell 3.62%, the I-fund lost 3.33%, and the F-fund (bonds) gained 0.48%.

The S&P 500 finally saw a break of the bear flag and head and shoulders patterns, and it was flirted with the August low. It did successfully test the closing August lows, but did not quite hit the August 9th intraday low of 1101. All of this came with a spike in volume that could indicate that we are near at least a short-term panic low.

I think it is possible that yesterday was a successful test that could be the low, but just based on the technical analysis, you can see that the breakdown in the bear flag and head and shoulders patterns, gives the S&P 500 downside targets at much lower levels.


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

The market leader Dow Transportation Index did make a new low and a new closing low. Being the leader, we have to worry about the S&P 500 following. Recapturing the old low quickly would be helpful.


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

The Nasdaq is still well off of the August lows, but it did break below its rising wedge, and that old support could now act as resistance. You can see that another gap was left open by yesterday's drop, and since we know gaps tend to fill sooner rather than later, it will be interesting to see if the Nasdaq can move above resistance and fill that gap in the coming days.


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

Sentiment is back at the excessively bearish levels as this AAII survey shows, and this survey was taken before yesterday's sell-off, so it is probably even more bearish now. While seeing bull to bear ratios near 0.50 to 1 is a recipe for a rebound, it is not always a bottom. So be careful if you decide to jump in. These are sometimes good opportunities, but only if you can be nimble. We don't know if this market wants to make another push down.


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

The TSP Talk Sentiment Survey is in the same situation as it came in at 29% bulls, 63% bears, for a bulls to bears ratio of 0.46 to 1. That is a buy signal so the system will remain 100% in the C-fund for the week of 09/26/11 - 09/30/11.

These type of sell-offs set up good buying opportunities but the volatility and large intraday moves don't make it an easy game. Remember, we are in a bear market and we should expect bearish results until things improve technically. For those less adventurous, you are probably better off waiting for some technical confirmation rather than trying to catch a falling knife. I like to take a chance once in while if opportunities present themselves, but that does not work all the time, and when it doesn't work it can really hurt your account. If I had more IFT's to work with I might have nibbled on some stock funds yesterday, but with only one left, I decided to hold off.

Thanks for reading! Have a great weekend!

Tom Crowley


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