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Election week uncertainty

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11/05/12

The October jobs report was released on Friday and the 171,000 jobs added and 7.9% unemployment rate initially sent stock futures and later stock indices higher. By the close it was a different story as most of the indices gave back most, if not all of Thursday's big gains. The Dow ended the day down 139-points.
Daily TSP Funds Return
G-Fund: 0.0036%
F-fund: -0.03%
C-fund: -0.94%
S-fund: -1.33%
I-fund: -0.04%
For more on last week's and the current monthly returns, see the recent Weekly Wrap Up.

Most of the time the market indices are forward looking indicators and the news follows the action of the market. By now we would have thought that the stock market already priced in the winner of the presidential election, and that may be the case, but the fact that most of the major indices are trading right about where they were 7 months ago may be telling us that it doesn't know who will win either. If the winner is priced in, then we could see a "sell the news" reaction no matter who wins. Otherwise, if the market is waiting like the rest of us, it
makes for a very interesting week for the stock market. Because of this, analysis will be tough with so much at stake, and so little certainty. It may not matter who wins for the market and investors. They just want to know who will win so they can plan accordingly.

The S&P 500 chart does not look good. The rising trading channel (blue) broke in October, as did the strong horizontal support / resistance line (red) connecting recent highs and lows. The early gains on Friday tested that resistance line and stocks backed off quickly.


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


Should the market rally strongly this week, either before or after the election, and move back above the resistance lines and EMA's, the bullish character could come back, but until then the market looks to be in a downtrend.

We don't have to look much further than the Nasdaq...



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


... and the small caps of the Russell 2000 to see the downtrend, and to see that the top of the descending trading channels were tested last week, and the resistance held.


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


The dollar showed some strength on Friday and moved above recent highs and the 50-day EMA. The higher high could be a new uptrend forming which could put some pressure on stock and commodity prices.


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


The recent TSP Talk Sentiment Survey came in at 60% bulls, 30% bears, for a bulls to bears ratio of 2.00 to 1. That is a Sell signal which means the system moved to a 100% G fund allocation for this week.

The charts look bad and suggest that we could see a sell the news reaction after the election, but with so much at stake and the outcome as uncertain as a flip of a coin, who knows how the market will react come Wednesday, assuming the race isn't so close that it tales longer to determine a winner? The old cliché that the market hates uncertainty would lead us to believe that no winner being declared right away may not be good either.

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

Tom Crowley


Posted daily at www.tsptalk.com/comments.html

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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