TSP Talk Blog

Stocks rallied sharply yesterday after Ben Bernanke stated that he is committed to low interest rates low in an effort to keep the jobs market growing. The Dow gained 161-points.



For the TSP, the C-fund was up 1.40% yesterday, the S-fund gained 1.61%, the I-fund made 1.40%, and the F-fund (bonds) added 0.02%.

So how can you tell when you're in a bull market? When you get a big rally on the heels of the Federal Reserve Chairman saying the economy needs to grow more quickly if it is to produce enough jobs to continue to bring down the unemployment rate.

Basically he's saying he is not going to let the economy slow down. If it does, he will be there with low rates, and although we may be a long way from it, a possible QE3 (quantitative easing.) "Accommodative policies", is the way he put it.

How can the bears fight this? How can we sit around and wait for a pullback since it sounds like they won't allow the market drop. I actually feel silly sitting in cash right now. But of course the market is never an easy read and this is exactly the attitude that you might expect after a big rally. However, this could also be the rally that sucks in more money from the sidelines, only to see the real pullback finally show up. In the end, I guess we shouldn't be surprised that in a bull market, stocks rallied after a 2 to 3 day dip last week.

Here is that rebound in the S&P 500 after last week's dip. The 20-day EMA has held and there is a lot of room on both the up and down side of the rising trading channel as the index is right between the support and resistance lines.


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

The small caps of the Russell 2000 have now broken out from the inverted head and shoulders pattern. That's a very bullish sign and the upside target from this pattern is somewhere between 5% and 10% from where it closed yesterday.


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

The announcement from Bernanke about keeping rates lows, plus the outside chance of a QE3 sent the dollar lower yesterday, which was part of the reason why stocks, gold, oil and other commodities, were higher on the day.


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

Oil was up on the day, but the 0.2% gain was almost entirely due to the dollar so it actually showed some relative weakness on the day, but the chart is still suggesting that higher prices are likely on the way.


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

The action of the Fed has some up in arms blaming them for adding fuel to what could be, or will inevitably be, a serious inflationary problem. So while those in stocks are enjoying the higher prices, the question is, in relation to what?

The S&P 500 is up over 12% in 2012 - in dollars, but if you had to buy the S&P 500 with gold instead of dollars, it's only up about 6% this year since gold is also up over 6%. And looking back several years you can see that the S&P 500 has issues when compared to gold, which has gone up in value...



While the dollar has declined over 30% since 2001...


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

For the record, I'm not a gold bug, and while I probably should, I don't currently own any physical gold. But I do trade it in my IRA via ETF's. And it really doesn't matter what you use.... If you paid for the S&P with oil, stocks would only be up about 4% this year since oil is up about 8% this year. The dollar is down for the year.

This is a bull market and the charts don't dispute that. The point of this is that there could be trouble down the road , and we'll cross that bridge when we get there. We'd just hope, as technical analysts, that the stock charts can give us some clues when to get concerned, but as I said, we should probably pay a little closer attention to what the prices mean since we can't always get the full story from the charts that are priced are in dollars alone.

Thanks for reading! We'll see you tomorrow.

Tom Crowley


The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.