TSP Talk Blog

Stocks rounded strongly yesterday as the TSP funds made back 4% to 5%, not quite half, of Monday's pillage and plundering of the market. The moves continue to be wild and the trend is certainly still down, but that intermediate-term trend will be tested sooner rather than later.

The S&P 500 rebounded but did not quite make it back to the 20-day moving average, and it is about 3% below the resistance from the top of the declining trading channel, so the test of the downtrend will be almost immediate. Today, look for 875 to be a trouble spot on the upside.


Chart provided courtesy of www.decisionpoint.com

There is certainly no shortage of bottom calling from the media (mainly CNBC) but as we talked about on Monday, the indicators won't confirm that for quite some time. In the meantime, the chart is not looking like a bottom, but it could be the start. If the October 10th low had held, I would be more inclined to be optimistic. But the fact that we have seen that low taken out twice in November, tells me we will at least test that new low (741) once again on the S&P. Whether that test holds we don't know, but the charts don't give us any reason to believe the downtrend will end.

That declining trading channel drawn in above is just the intermediate-term trend. If we see a move back over 900, that would be a good sign of an upcoming intermediate-term rally, but the long-term bear market trend continues to loom. We could actually rally all the way up to 1200 on the S&P 500, a rally of over 40%, and we might remain in the long-term downtrend. So, to call a bottom here is quite speculative, but hey - that's what we do - speculate.

Oil dropped to $47 a barrel yesterday, levels not seen since late 2004. Just as $150 a barrel seemed too high, we are starting to see oil hit numbers that may be too low. But that doesn't mean that oil has bottomed yet. What this reiterates to us is that bull markets will move up higher and longer than what would seem reasonable, just as bear markets will move down lower and longer than seems reasonable.

So when you hear the stock analysts, who base their opinion on a company's stock fundamentals, saying that stocks are cheap, that is not necessarily a good reason to buy. Cheap stocks can get very cheap - unreasonably cheap - before they bottom out.

Was a stock like Citi (C) cheap when it went from $50 to $40? How about when it hit $30? $20? Even if you waited to buy when it hit $10, you would have still lost about 70% as it drifted near $3 a share before finally rebounding.

So price is relative. Is the S&P 500 cheap at 848? Maybe. But that doesn't mean it will stop going down. Watch the charts, not the number.

That's all for today. Thanks for reading. We'll see you here tomorrow.