TSP Talk Blog

3/14/12

We saw a nice breakout on decent volume yesterday as the Dow gained 218-points pushing over the 13,000 level again. It was a combination of strong retail sales, a positive economic outlook from the Fed, and JP Morgan raising its dividend, that seemed to propel stocks higher.



For the TSP, the C-fund was up 1.85% yesterday, the S-fund jumped 2.01%, the I-fund gained 1.61%, and the F-fund (bonds) lost 0.26%.

The S&P 500 saw a strong breakout above the February highs and the 2011 high. We now have a new line in the sand for the bull market as I would say that the 1371 level needs to hold or this could be a fake-out. I do think that is possible, and I may start taking some profits from my recent purchase during last week's pullback, but this could be the 3rd month in a row that I sell too early so I will watch 1371 closely.


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

A closer look at the S&P shows us how impressive the breakout in the S&P 500 was.


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

Also very positive was the breakout in the Dow Transportation Index from its 6-week descending trading channel.


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

The Nasdaq confirmed the breakout by also making a bold move to new highs.


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

Before we get too excited, I will once again repeat something we posted a couple of times in the last week. At the risk of being redundant:

"The other market leader [Nasdaq 100] just experienced its first 1% loss of the year - something the Transports have already done, but the S&P has not. This initial 1% drop in the Naz 100 (NDX) is a sign that lower prices are around the corner, but history shows that we are likely to see new highs first - before any kind of correction.

"According to sentimenTrader.com: "Going back nearly 30 years, there was one only other time the Nasdaq 100 didn't suffer a -1% down day for at least two months, then fell more than 1% from a multi-year high. "That was 06/05/89, after which it popped right back up to another new high, then rolled over and dropped more than -5% during the next month."

"If they loosened the parameters to no -1% down days in the past month (instead of two months), then they got 3 more occurrences, 11/23/99, 10/11/07 and 1/19/11.

"All of them saw the NDX climb back to a new high within the next few sessions, but the latter two saw the index top out within the next couple of weeks after reaching those new highs.

When they loosened the parameters looking only for a one-year high (instead of a multi-year high) then they got get two more occurrences, 9/9/03 and 4/16/10. Once again, the index popped right back up to a new high within days, but those highs proved fleeting and it lost at least -5% during the next several weeks."

So we clearly we saw the first part of the historical precedent occur as we are seeing the new highs. That would leave us with part two - where a 5% or more correction over the next couple of weeks would not be a surprise.

The yield on the 10-year T-note made a new multi-month high yesterday as it made its highest close since since early December, and second highest close going back to late October.


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

This was a result of the positive spin the Fed put on the economy. Whether this is just a case of being at the top of the range (~ 1.85% - 2.1%) that is destined to pullback down, or if this is an actual breakout, remains to be seen. My guess is that if stocks pull back, we will see these yields pull back again. And if stocks continue to rally, the yields will as well. The latter would be a negative for the F-fund since bond prices move inversely to bond yields.

After the close yesterday, the Fed posted the results of their annual stress test of the largest U.S. banks. 15 of the 19 banks passed, and judging by the overnight futures trading, which are very flat as I write this, it is not going to be a market mover.

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

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Tom Crowley

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