TSP Talk Blog

11/12/11

The market fights to retain uptrend

The major indices, and our TSP stock funds, were bouncing violently last week in reaction to the ongoing debt situation in Europe. The new catalyst seems to be the yield of Italy’s 10 year bond.

As the yield approached and went above 7%, a level that meant bailouts to other troubled European countries, stocks around the world were hit hard. By the end of the week, the yield had eased back below 7% and stocks recovered.

Because of the holiday, the big market gains on Friday have not yet been reflected in the TSP share prices. This Monday’s closing share prices will include the market action of both Friday and Monday.



So the market did a lot better than the weekly TSP stock fund prices would indicate. But don’t worry. Those gains will be given to you next week if you held the C, S, or I funds. Officially, the C-fund lost 0.99% on the week, the S-fund dropped 2.84%, the I-fund fell 2.77%, while the F-fund (bonds) lost 0.25%, and the G-fund was up 0.03%.



For the month, and again this is excluding Friday’s action, the C-fund is down 0.96%, the S-fund has lost 1.91%, the I-fund has fallen 3.88%, while the F-fund (bonds) is up 0.12%, and the G-fund had made 0.05%.

I’ll try to make sense of this chart for you as I do see positives here, despite volatility and large sell-offs. The first thing to notice is that the S&P 500 is trading back above the 200-day EMA and the 50-day EMAs, which is a key ingredient to a potential new bull market.

Next, the old ascending trading channel (purple) was quite steep and we pretty much knew this angle of incline could not be sustained for too long. It did break down last week but we may have started a new, or simply resumed a more moderate, ascending trading channel, which is marked by the lower thick red line and the thin red line running parallel to it.


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

The lower high made on Tuesday / Wednesday of last week may have created a triangle or pennant formation, which is represented by the two thick red lines. These formations are generally considered continuation patterns which means, whichever way the market was going before the triangle was created, would be the direction it would breakout, which in this case is up.

There is one thing to keep an eye on as the market does try to fool us. Many times these triangles breakout in the “wrong” direction first, before going back into the triangle and breaking out in its eventual “real” direction.


With the ongoing debilitating saga coming out of Europe, plus our own debt issues with the Super Committee struggling to accomplish anything as they approach a major deadline, I suspect we could see several fake-outs. But what is interesting is that the market is flirting with 3+ month highs despite all of this. I trust the market to give us a better interpretation of the situation than the news headlines ever can, and right now the market appears to be giving us a thumbs up – at least for the intermediate-term.

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

Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
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