TSP Talk Blog

12/14/12

After a positive open on Thursday, stocks drifted lower most of the day as both political parties went public again about how bad the other party's proposals are. The Dow lost 74-points or about -0.6%, which is about how the C and S funds ended the day as well.

Daily TSP Funds Return G-Fund: 0.0036% F-fund: -0.07% C-fund: -0.61% S-fund: -0.60% I-fund: 0.04% More returns

The S&P 500 has several areas of support and resistance all around the current level. One of the positives is the 20-day EMA crossing above the 50-day EMA. That is usually a bullish intermediate-term indicator, but it can also be an overbought reading for the short-term.


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

After filling the overhead open gap on Wednesday, the small caps of the Russell 2000 filled the small open gap down near 826 on Thursday. The gap down near 813 can still be considered open, but it made a couple of good attempts to fill that already.


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

The open gap way down near 777 is a concern, but that test could be months away. A gap usually gets filled sooner rather than later, so when they don't get filled quickly, it could take a long time before they get revisited. But the bad news for the bulls is, it will likely get filled one day - probably in 2013.

The yield on the 10-year Treasury Note has rallied strongly in the last week, and it just put in a new higher high, but it has only closed above the 200-day EMA once in the last 8+ months and it is nearing another test.


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

As many of you know, the capital gains tax is almost certainly going to be raised in 2013. I don't see a deal in which this won't be the case.

I did a little research on what happened at the end of 1986, beginning of 1987 - the last time the capital gains tax was raised. The increase passed congress in October of '86 and after an initial rally in December of '86, the S&P 500 fell 5% into the end of the year. We know that the last couple of weeks in December are normal a very strong time for stocks, so this was an obvious impact from investors selling to lock in the lower capital gains tax.


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

The good news is, after the capital gains selling was over and we moved into January 1987, stocks soared. They gained 13% in January alone and were up 25% by the time the market saw its first serious pullback in March 1987.

After a about a 10 week consolidation, stocks rallied even further but it all ended with the infamous 1987 market crash in October.

The moral of the story: Capital gains selling could be an issue as the year comes to a close, but if that happens, those sellers will likely be back buying strongly in January.

If things breakdown in the coming weeks, this could be why. Add the fiscal cliff deadline at the end of the year into the mix and we have a recipe for some justifiable jitters from investors. But the charts still look bullish, we needed a little rest, and I wouldn't get overly bearish over it.

Thanks for reading! Have a great weekend!

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.