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TSP Talk Weekly Wrap Up - 11/06/10

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Bull resumes

This past week saw the stock market resume its bullish ways as investors seemed to applaud the election results, the $600 billion second round of quantitative easing from the Fed, and a decent jobs report.

For the week, all of the TSP funds were positive. The C-fund was up 3.64%, the S-fund gained 4.16%, and the I-fund picked up 3.45%. Bonds (F-fund) were also up adding 0.29, and the G-fund made 0.03%.

It was a good start to a new month, and while there are many non-believers out there, this market is in high gear and heading into a tsunami of strong historical seasonal data. November, December, and January are historically the most positive months of the year. You’ve heard the saying, “Sell in May and go away?” The other half of it is, “Buy in November and hold into April.” That part isn’t as catchy so it didn’t quite take off like the sell in May part.

Also, I had posted before how well the market has done after the mid-term elections in the last 100 years, and going along with that, the 3rd year of a president’s term is historically the strongest.

I am not saying that I know why this market is going up, whether it will continue, or if all of these gains will be taken away at some point. But I am saying the market is going up now, and as a market timer, that’s all I really care about. If things rollover, I might be the first one out the door at the first sign of trouble, but there is an obvious bid (buyers) under this market and I want to enjoy the ride as long as I can, while being prepared to recognize when it may be over.

This might be a good time to mention that one of our systems, the TSP Talk Sentiment Survey System, gave a sell signal for this coming week. That system is up over 26% in 2010 so it seems to want to lock in some gains, at least in the short-term.

The S&P 500 (our TSP C-fund) broke out above the April high and closed at its highest level in two years. The breakout is significant – if it can hold. Double tops can produce strong pullbacks, but if the breakout holds, the rallies tend to do well. At point “A” below you can see that breakout in March of this year went on to several more weeks of positive gains until the peak in April.

Looking at a longer-term weekly chart, points “A” and “B” below show the two most likely outcomes of these double tops. Point “A” broke out in 2006, and the rally lasted until mid-2007 with one significant pullback in there in early 2007. At point “B” the breakout failed and it initiated the bear market that took away years of gains. Here we are at point “C” and we will either see a point “A” or point “B”. Let me tell you why I believe it could be more of a point “A”…

The S&P 500 index is a follower. It generally follows the market leaders; The Dow Transportation Index and the Nasdaq. They have both already broken the April highs. Take a look at what the Nasdaq has been doing lately…

Charts provided courtesy of, analysis by TSP Talk

This index tested the double top back in early October, and it broke out almost effortlessly. If the leader can do that, I am hopeful that we can see the S&P 500 follow along.

The market has come a long way in a short amount of time and it is no secret that at some point we will see a pull back or even a more serious correction. But as I wrote about in my market commentary on Friday, we should see some warning signs beforehand, hopefully giving us time to make our exit.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley

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