TSP Talk Blog

Stocks struggled all day but things really fell apart after Standard and Poors (S&P) revised their outlook on GE's credit rating from stable to negative. The TSP funds dropped 2% to 3% with the I-fund taking the largest hit after the dollar rallied 1.5%.

The S&P 500 broke through the lower end of the rising wedge pattern mid-day, but did squeeze back in by the close. The bears would say that it is now on the precipice of a potential sell-off if the S&P does break, but the bulls still have seasonality on their side.


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

Today is a triple witching Friday as options and futures contracts expire today. This could bring with it some peculiar trading, so it could be tough to decipher. Next week "normal" trading will resume, but then again next week is Christmas week and there's nothing normal about Christmas week trading. There is a particularly strong positive bias beginning on Christmas Eve and going right through the New Year, but a rally is not a slam dunk. We've had a few clunkers thrown in there. Christmas Eve is day -1 below.


Chart provided courtesy of www.sentimentrader.com

We saw a rise in bullish sentiment this week in our TSP Talk Sentiment Survey. The 47% bulls reading is the highest reading we have had since it was 48% in early November, where the S&P 500 dropped about 20% during the next three weeks.

Under the old sentiment survey system, the 1.27 to 1 bulls (47%) to bears (37%) ratio, there would be no change to the system's allocation as it was a neutral reading. Under the new one, discussed here, it would be a sell signal because anything over a 1 to 1 ratio when the 50-day moving average is below the 200-day moving average, is a sell signal.

Similarly, the AAII Investor Sentiment survey jumped over the 1 to 1 bulls to bears ratio. The last few times that has happened, the market had trouble making any forward progress.


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

The VIX (Volatility Index) is back in the 40's and down to the lower end of the Bollinger Bands. In November, this situation was the start of another leg down.


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

The fact that the VIX has now put in a lower low (47 vs. the late November move to 50) is a good technical sign, although historically 47 is a very high reading, but it pales in comparison to the readings we saw in October and November.

This coming holiday week should provide a pretty good test for the bulls' case. We have the bullish seasonality data vs. the bearish sentiment data (overly bullish is bearish). Is this a bear market rally, or has a new bull begun? It may be too early to determine the latter, but if things turn south in the short-term, I think we'll have our answer.

That's all for today. Thanks for reading. Have a great weekend!