TSP Talk Blog

2/21/12

Stocks were mixed on Friday as the Dow saw a healthy 46-point gain and the S&P 500 picked up 3-points, but the market leaders - Dow Transports, the Nasdaq, and small caps - were all down on the day.


For the TSP, the C-fund was up 0.24% on Friday, the S-fund lost 0.17%, the I-fund added 0.17%, and the F-fund (bonds) slipped 0.01%.

The S&P 500 will likely challenge the May 2011 high this week. The question is, will it be able to breakout above that level (1370.58) after rallying with virtually no pullbacks since before Christmas? We still have not had a -1% day in the S&P 500 in 2012.


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

Momentum is one of the strongest forces in the market and we saw the Nasdaq already make the new highs this year (above last year's highs), but the leader, Dow Transportation Index, has not made new highs. In fact it is a few hundred points below last summer's high.


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

Technically, it did have a break down in the trend, although so far it has remained above the 50-day EMA. The Transports are very sensitive to the economic environment and of course one of the main roadblocks for Transportation stocks is the price of oil.

As you have probably been hearing, oil is back on the front pages as it starts hit levels not seen since last May - not so coincidentally, the same time the S&P 500 peaked in 2011.


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

The chart of oil shows that we had a breakout above the neckline of a large inverted head and shoulders pattern on Friday. The technical target of an inverted H&S this size is somewhere near 130.

sentimenTrader.com smart money / dumb money confidence indicator shows that the smart money is below the important 40 level, and the dumb money is above 60. Although not a great short-term timing indicator, when these two are this far apart it tends to be negative for stocks in the intermediate term.


Chart provided courtesy of www.sentimentrader.com

Normally we (you and I) are considered the dumb money, but our surveys are coming closer to the results of the smart money as our readers do not seem to be embracing this rally despite its strength.

Our Sentiment Survey came in at 47% bulls, 43% bears, for a bulls to bears ratio of 1.09 to 1. That is another buy signal in a bull market which means the system will remain 100% S Fund for this week.

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

Tom Crowley


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