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Bad news is good news

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4/27/12

Stocks rallied again yesterday after more decent earnings reports, and despite more concerns from the jobs market. The Dow gained 114-points and the gains were spread out through most of the major indices, except for the Transportation Index which was actually down 1.1% on the day.


For the TSP, the C-fund gained 0.67% yesterday, the S-fund was up 0.88%, the I-fund made 0.11%, and the F-fund (bonds) gained 0.08%.

The earnings were good, but the strong action seemed a little strange considering the weak jobs data. It may have to do with what we touched on yesterday - that weak economic data may force the Fed to consider a QE3, otherwise the market really doesn't have a catalyst after earnings season.

The S&P 500 is looking better here - certainly better than where it was a couple of days ago.


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

The Dow is actually just 130 points or so from a new high.

The TSP Talk Sentiment Survey came in at 52% bulls, 36% bears, for a bulls to bears ratio of 1.44 to 1. That is a neutral reading in a bull market which means the system will remain 100% S fund for the week of 4/30/12 -5/04/12.

Of course our survey is taken on Thursday, which was after / during the big move off of the lows. The AAII Investors Sentiment Survey was taken early Wednesday and like last week, the big mid-week market turnaround made the two surveys tell two different stories.

The AAII came in at 28% bullish, 37% bears for a ratio of 0.74 to 1, which is a bullish sign for the market, and so it makes sense that we saw the Wednesday / Thursday rally.


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

SentimenTrader.com had some data comparing other times when the S&P 500 was within 2% of a new high while the AAII had a 6-month low in bullish percentage.

"It's unusual to see a six-month low in bullishness when stocks have been holding up well. The table to the right shows the other times in the survey's history when the S&P 500 was within 2% of a 52-week high, and the bullish percentage dropped to a six-month low."




Chart provided courtesy of www.sentimentrader.com

"One caveat is that the biggest failure among the precedents was the last one, in May 2011. In the middle of that month, individuals were heading for the exits in spite of the S&P being barely 1% from a new high. That proved to be prescient as stocks tumbled over the next few months."

After the close yesterday, Standard and Poor's downgraded Spain's credit rating and the futures headed modestly south on the announcement. We said that bad news may be good news as far as economic data goes, but I don't know exactly how the U.S. markets will react to bad European data. I guess we'll find out today.


Thanks for reading! Have a great weekend!

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.

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