TSP Talk Blog

05/20/12

Stocks soared again on Friday, after Thursday's brief dip. The Dow gained 121-points and the indices continue to defy gravity.

Daily TSP Funds Return G-Fund: +0.0035% F-fund: -0.35% C-fund: +1.03% S-fund: +0.99% I-fund: +0.11% More returns

The S&P 500 closed for a 4th day above the longer-term rising support line. I like to give at least 3 days to confirm a breakout, which has obviously been accomplished. But I like to give up to 5 days so a close today above that resistance line and it will be hard to deny.


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

The S&P 500 is now a whopping 177-points above the 200-day EMA, which is 12%. That is about as extreme as it gets, but it doesn't necessarily mean the S&P will drop like a rock now. Any kind of intermediate-term sideways consolidation would take care of that without having any major damage done, but of course a correction would be the easiest way to fix this extreme reading. Even a 10% correction would keep the S&P 500 above the 200-day EMA, putting it at 1500.


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

I remember the mid-to-late 90's and early 2000's as a wild time for stocks. By wild I mean exceptionally bullish. The rallies in 1995 were similar to what we are seeing now. We went a very long periods of time without any major corrections.


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

This repeated for years with the occasional correction, but it wasn't until the dot com bubble burst before it all ended. There was a major decline in 1998 but stocks resumed their gigantic rally a few months later.

One thing to notice above is how low volatility was in the 90's, by that I mean the ups and downs weren't that severe, although this chart is linear and not logarithmic, which would make the mid-90's swings look more dramatic than this linear chart. The volatility did pick up as the top was forming in 1999-2000, which is typical.

The dumb money is as bullish as it has been in years and looking at this pattern you would think that is a bearish signal for stocks.


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

But the smart money is also bullish and as bullish as they have been in several years. This would usually be considered bullish for stocks, although I have noticed that the dumb money is a better indication of sentiment - as a contrarian indicator, than using the smart money as a non-contrarian indicator.


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

Bonds (TLT) broke below some longer-term support on the weekly chart, which may be problematic for the F-fund for the long-term, although short-term bullish and bearish swings are probable. This chart is looking quite "toppy."


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

As we talked about last week, this is a pre-holiday week that has a tendency to start slowly (weakly). It is also an options expiration week that tends to be more negative than an average week. Of course we are in the middle a huge bull market so... whatever.

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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