TSP Talk Blog

5/02/12

A strong manufacturing report ignited stocks shortly after the open yesterday but the large early gains were diminished by the close. The early 125-point gain in the Dow turned into a 66-point gain.


For the TSP, the C-fund was up 0.57% yesterday, the S-fund gained 0.20%, the I-fund fell 0.22%, and the F-fund (bonds) lost 0.12%.

We talked the other day about bad economic news being good news because of the possibility of a QE3, but the strong ISM number yesterday seemed to catch investors off guard. Good news triggered a rally and many were hustling to get on that side of the trade, but the rally did fizzle late in the day.

The S&P 500 bounced off of the support line again, but like all of the indices, closed well off of the highs. The PMO just crossed its 10 day moving average, which is normally a bullish intermediate-term sign, but sometimes a short-term overbought sign.


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

On April 19 we said:

"I see this as similar to other market tops. The market rarely hits a new high, then just turns into a bear market. There is usually more churning, new highs, pullbacks, almost news highs, etc., then a top. We may be in the churning point now where new highs may not be out of the question, but it may find it tough to hold." But while the S&P 500 trades above the 50-day EMA, I try to lean toward the bullish side.

Of course we don't know what will actually happen, but the action is following that plan. That last sentence though, is a key. Rebounds off of the 50-day EMA have to be respected in a bull market.

The Nasdaq put in a big kangaroo tail reversal yesterday closing near its lows despite remaining in positive territory on the day. The open gap will be like a magnet and the reversal pattern may have pointed it in the direction.


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

Small caps also saw a big reversal and has a large open gap below. It looks like 800 could be on the itinerary for the Russell 2000.


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

Bond yields rallied (F-fund down) on the strong economic data, but they remain stubbornly low for some reason. The 1.9% area seems to be acting as some support. If it holds that would be bearish for the F-fund, but the trend is still down.


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

Oil has broken out of its recent downtrend. Higher oil prices could be a sign of an improving economy, but if gas prices start rising again it could put a damper on it.


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

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

Tom Crowley


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