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Bad news means buy?

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08/05/13

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Stocks opened lower on Friday, after the semi-disappointing jobs report, but again buyers were right there to pick up the pieces and by the close, most indices were in positive territory. The Dow gained 30-points.

Daily TSP Funds Return
G-Fund: +0.0064%
F-fund: +0.58%
C-fund: +0.17%
S-fund: +0.00%
I-fund: +1.22%
It was a wild week with earnings reports, a plethora of economic data, a Fed meeting, and finally the jobs report. The Fed seemed to be the catalyst and the weak jobs report (+162,000 jobs) told investors the Fed is less likely to taper their bond buying program. Most people know that tapering is coming sooner or later, but it doesn't appear that anyone wants to be the first one out of the exit.



The S&P 500 is riding the new rising support line after making a new high last week. Since the June low, the short consolidations, like the one we saw at the end of July, have been enough to get investors to jump in again.


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


The S&P 500 is now 153-points above its 200-day EMA. Not quite as extreme as we saw before the May pullback, but percentage-wise, it's getting extreme. But until the support breaks, the bulls are in charge.


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


With the economy running on fumes the last few years, and growth under 2%, you have to wonder how the stock market is doing so well. The Fed is a big reason of course, and the Fed's $85 billion purchase each month is having an impact. While stocks are at new highs in dollars, when you look at the S&P 500 in the prices of gold (an asset rather than a currency), you can see that it is far from new highs.



Source:
S&P 500

The VIX (volatility Index), which is a measure of investor fear, has been sinking since the May / June pullback, and even with Friday's early losses, the VIX was down in early trading. This is a sign of complacency - something we haven't seen too much of in the other indicators that we watch.


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


The current level on the VIX (11.98) has only been hit one other time since the 2007 market highs, and that was back in March of this year. It's been close several times but in 2013 it hasn't always meant trouble for stocks, although the May pullback began when the VIX dipped near 12.0.

Bond yields pulled back sharply on Friday after the jobs report, erasing the gains made on Thursday.


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


If that rising support breaks, look for bonds and the F-fund to rally, but when there's strong rising support and weak overhead resistance, the chances are that yields will make new highs before breaking down.

Our TSP Talk Sentiment Survey came in at 55% bulls, 38% bears, which is a neutral reading - no extremes. The system remains 100% S-fund.



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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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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