TSP Talk Blog

5/01/12

After 4 consecutive positive days, stocks pulled back modestly yesterday. A late rally took the indices off of their lows. The Dow lost 14-points, while the other major indices fell about a half of a percent.


For the TSP, the C-fund lost 0.39% yesterday, the S-fund was down 0.83%, the I-fund fell 0.26%, and the F-fund (bonds) gained 0.08%.

Here are the final TSP fund returns for April:



The S&P 500 pulled back to the support line of the rising trading channel. Volume was particularly light on the pullback, which usually indicates that the big money isn't selling yet.


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

The Dow ran into resistance so a little push back isn't much of a surprise. The question will be if the Dow wants to go all the way down to test the bottom of the new rising trading channel. That would take it down near 13,000 if it happens over the next few day. Because the support line is rising fast, where the test would happen depends on how long it takes.


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

The short-term indicators did get overbought a bit after last week's rally, but the intermediate-term indicators still look as if there may be more room left on the upside. That would seem to indicate that this pullback, should it last for a couple of days, can probably be bought, but...


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

... there is something very strange happing with the OEX put/call ratio.

First, the 10-day moving average of the CBOE put/call ratio ("dumb money") has been getting more bullish, although not quite at an extreme level. Still, it is getting high enough that a pullback seems about right since the dumb money gets most bullish near peaks.

At same time the 10-day moving average of the OEX put/call ratio ("smart money") is getting more bearish. The difference is not surprising. What is surprising was yesterday's one-day put/call ratio of 4.32.


Chart provided courtesy of www.decisionpoint.com

I am not sure what that hugely bearish one-day reading is all about, but to show you how rare it is, there was only 1 higher reading going back to 1989. The funny thing is that it happened in 2006 and nothing too out of the ordinary happened. There was a modest pullback shortly after, but nothing very severe.

In 2004 there was a slightly less negative reading (3rd most bearish reading since '89) and another modest pullback took place. Those were the only 3 readings going back to 1989 that were over 4.0.

This big reading will obviously have an impact on the 10-day moving average - which I normally watch closely - for the next 10 days. What it means, I don't know. I couldn't find anything about. Perhaps it is a data problem? Either way, it got my attention.

I had been thinking that with everyone seeing "sell in May and go away" working so well last year, we could see a strong May since the market likes to make the most people wrong that it can. But that OEX put/call reading really has me scratching my head now.


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

Tom Crowley


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