TSP Talk Blog

12/12/11

Stocks rallied sharply on Friday as the latest out of Europe was positive, but we know that could change at any time. The Dow gained 187-points on the day, not quite getting back all of the 199 it lost on Thursday.


For the TSP, the C-fund rallied 1.62% on Friday, the S-fund jumped 2.52%, the I-fund gained 2.10%, and the F-fund (bonds) fell 0.33%.

For weekly and monthly TSP returns, please see our recent TSP Weekly Wrap-Up.

I am not seeing any major bullish signs for the market, and except for some seasonality issues this week, I don't see any glaring bearish signs either. Many of the indicators I follow are simply neutral. Seasonality strength picks up big time after this week.

The index charts are leaning toward the bullish side because the S&P 500 is trading above the 20, 50, and 200-day EMA's and they could act as support. There's overhead resistance in the 200-day simple moving average, and the descending trend line connecting the recent highs.


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

The NYSE moved from slightly oversold into slightly overbought territory, but nothing extreme. That is what I see in most indicators - no real extremes.


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

Sentiment is basically neutral although last week's early selling did move some of the sentiment surveys and ratios closer to being overly bearish in the short-term - which would be slightly bullish for stocks this week. But the rally on Friday may have changed that.

The TSP Talk Sentiment Survey came in at 47% bulls, 41% bears, for a bulls to bears ratio of 1.15 to 1. That is a sell signal in using our bear market rules and that means the system will remain 100% G-Fund for this week. The system is just barely hanging onto its bear market rules status as the 50-day EMA is still 10-points below the 200-day EMA. If we were using the bull market rules the 1.15 to ratio would actually be closer to a buy signal than a sell. But a system is a system and following a system requires discipline. I don't follow the system signal by signal myself, but I do use it as one of my indicators and right now I don't see it as a plus or minus for stocks.

I don't know what is in store for Europe this week although the talk is possible downgrades to some countries' debt credit ratings. Those would probably be market movers.

Looking a the seasonality chart shows we are in the middle of the December lull as today is the 8th trading day of the month.


Chart provided courtesy of www.sentimentrader.com

I have some money in the stock funds but I am mostly in cash and bonds (G & F) right now and looking for a dip to get more into the stock funds on market weakness.

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

Tom Crowley


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