TSP Talk Blog
New lows
by , 10-03-2011 at 10:20 PM (3799 Views)
10/04/11
October and the 4th quarter did not start any better than September and the 3rd quarter ended. The Dow lost another 258-points and we are seeing new intraday and closing lows on some of the major indices.
For the TSP, the C-fund was down 2.84% yesterday, the S-fund dropped 4.93%, the I-fund fell 2.95%, and the F-fund (bonds) gained 0.53%.
The market is due for a relief rally, but the chart of the S&P 500 is hanging over a precipice and buying here would be a very tough call. The S&P closed at 1099 and as we talked about yesterday, the downside target of the head and shoulders pattern is near 1090. That doesn't necessarily mean there is support in that area. It is just a technical target area based on the size of the head and shoulders pattern.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Yesterday there was a rumor that American Airlines was on the verge of filing for bankruptcy, although it was never confirmed by the company. You can see what that did to the Dow Transportation Index - new lows on high volume.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The small caps of the Russell 2000 have really been hit hard during this recent sell-off. They are lagging badly having convincingly broken down to new lows. That is why our S-fund is doing so poorly.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
With nowhere else to go, investors have continued to moved into bonds. When yields go down, bond prices and the F-fund go up, and you see that the yield on the 10-year T-note has fallen ever since the test of the 20-day EMA last week.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
All of the gaps have now been filled on this 10-year T-note yield chart. The question is, will we see new lows in yields and a continued rally in the F-fund? If stocks continue to fall, the answer will probably be yes.
I continue to say that we could see a sharp rally quite soon, but we don't want to be too impatient. I have been looking for a capitulation-like sell-off first and with back to back 2.5% plus down days, we could be very close.
If we see a significant (1% or more) breakdown below the August lows, we will likely see a mass exodus from the remaining weaker bulls. The buy and holders will hang on, but any other bull who has not already sold will be really tested on a breakdown, and that kind of panic selling will likely give us a short-term buying opportunity.
We may not even need that. According to sentimentrader.com, since 1928, the S&P 500 lost more than -2.5% on two consecutive days while closing at a new one-year low, 24 times. The next day was positive 50% of the time, the next week 71% and the next month 58%.
As far as the next week goes, since 1940, the S&P was perfect being up 11 out of 11 times with a median return of +4.7%.
Since 1928, if the 2nd down day was a Monday (as it was this time), then the next week was positive all 5 times, averaging +11.1%. If we see another big loss this week, I may have to start to gamble. Maybe not 100% in stocks all at once. With 2 new IFT's in October (plus a 3rd to move to G) I can buy in 2 increments if I want to. I just have to remember to sell the rallies.
Don't forget we have the September jobs report on Friday morning.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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