TSP Talk Blog

1/07/12

Stocks moved higher on Friday as sellers seem to have stepped aside as we entered the new year. The Dow gained 44-points.

Daily TSP Funds Return G-Fund: 0.0043% F-fund: -0.03% C-fund: 0.48% S-fund: 0.81% I-fund: 0.78% More returns

For the week we saw some very impressive gains with the C and S funds making 4.6% and 5.6% respectively.



By comparison; for the entire year of 2012, the G-fund gained 1.47% and the F-fund made 4.29%.

The S&P 500 chart shot up early last week, and over the last two trading days has started to move slightly higher. If we use the spring / summer chart as a comparison, we might be expecting a pullback here this week, if the pattern continues...


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

And the January seasonality chart might agree as we tend to see some profit taking starting on trading day #4 after the holiday rallies. But...


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

... But something is different this year. If the capital gains selling in December resembled the capital gains selling we saw in December of 1986 (the last time capital gains were being increased) then the idea of a pullback in early January may not be a slam dunk call.

In January 1987, just after the December '86 capital gains selling ended, stocks rallied sharply out of the gate, similar to this year. And instead of pulling back after the big rally, the market continued to rise steadily with barely a dip for several weeks, and no significant pullback for months.


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

Look at the similarity to the start in 2013.


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

A pullback is more likely but certainly something to consider as a possibility. This may be a good time to bring up the upcoming debt ceiling negotiations. Maybe another day.

The Nasdaq gives us a reason to be cautious since we know gaps usually get filled sooner rather than later... but not always. This year started with a large gap up on January 2nd. We would expect this to get filled within days, but when they don't get filled - less common - they could take months to fill. We still have an open gap from mid-November.


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

In early 1987 the Nasdaq likely gapped up in a similar fashion. Like the S&P 500, the Nasdaq ran up for months, but that gap did eventually get filled in October of that year when we had the 1987 market crash. So enjoy the rally, but don't coast into the end of the year thinking these gains are necessarily safe. Gaps get filled... eventually.

The Sentiment Survey System came in at 60% bulls, 30% bears for a 2 to 1 bulls to bears ratio. That is a sell signal in a bull market so the system moves from 100% S to 100% G fund for this week.

For those of you who can't get enough charts and analysis, Trader Fred has been working on a series of technical reports over the last several months that does some of the most comprehensive analysis on head and shoulders patterns, trading pre / post options weeks, etc., that I have ever read. He is making it available to all TSP Talkers... Trader Fred Technical Reports

Also, if you haven't already seen it. Intrepid Timer has posted his End of the Year Report.

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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