TSP Talk Weekly Wrap Up – 10/15/11


Stocks rallied strongly last week as the Dow gained 543-points, following through on the relentless rebound off of the early October low.

The news of bailouts in Europe helped propel the rally, ironically at a time when there is a world-wide cry out against
such big bank and Wall Street bailouts.




It was a big week for the TSP stock funds as the C-fund gained 6.00%, the S-fund jumped 7.62%, the I-fund was up 6.54%, while the F-fund (bonds) slipped 0.18%, and the G-fund was up 0.03%.



For the month, t
he C-fund is now up 8.35% in October, the S-fund has gained 9.76%, the I-fund has added 8.99%, while the F-fund (bonds) is down 0.80%, and the G-fund is up 0.06%.

The S&P 500 has now gained over 10% since the early October test of the lows two weeks ago. It has broken above the 50-day EMA and even pulled back slightly to successfully test it again on Thursday. It is now ready to test the 200-day EMA and the late August highs.


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

Coming off of a 52-week low, the S&P’s 10% rally has come with no -1% down days. Since 1928, this kind of price behavior was seen only five other times:

01/05/42...Led to an immediate failure
10/08/81...Led to 30-day rally, then failure
08/20/82...Major bear market low, no pullbacks
08/03/84...Led to 4 months of chop, then rally
10/04/01... Led to 3-month rally, then failure
Source:
www.sentimentrader.com

So history doesn’t give us too many clues as to which was we could head from here, although only one instance led to an immediate decline, and that was 69 years ago.

The Nasdaq has been leading the way to the upside lately, which is usually a good sign for the market. It is now trading above the 200-day EMA and the August high, making it the only major index to do so.



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

The rally has not been accompanied by a lot of volume, which could be taken two ways. On the negative side, light volume trading means that the “big money” is not interested in participating in the rally, which could mean they do not trust it.

On the positive side it could mean that there are a lot of investors still on the sidelines sitting in cash waiting to buy. This kind of situation could lead to a rally like we saw at the 2010 market bottom where we did not see very many pullbacks because every dip was bought by those who were left behind.

Bottom line, based on the charts and indicators we have a fairly bullish situation but the market is overbought and I am always leery about chasing a big rally. After the 10% move, I would prefer to be a buyer of pullbacks, if we are lucky enough to get one.

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

TSP Wrap Up.

Tom Crowley


The legal stuff: This information is for educational purposes only! This is not advice or are commendation. 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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