TSP Talk Weekly Wrap Up – 4/14/2012

It was a wild ride on Wall Street for investors last week. This year's rally had lulled some of us into complacency with the relatively low volatility we had been experiencing, but things changed last week and investors are getting a little nervous. That could be a good thing.



For the TSP, the C-fund lost 1.97% last week, the S-fund dropped 2.10%, the I-fund fell 1.35%, while the F-fund (bonds) gained 0.72% and the G-fund was up 0.04%.



For April, the C-fund is now down 2.62%, the S-fund has lost 3.14%,the I-fund has fallen 4.11%, but 2012 gains are still strongly positive. The F-fund is now up 0.81% for the month, and the G-fund has added 0.06%.

The trouble in Europe was back in the headlines last week, which may be what caused the late selling on Friday as investors seemed nervous about holding over the weekend. Earnings have been OK, but expectations had been getting lowered. Some weakness in the economic data, particularly on the jobs front, is also adding to the overall concerns. And a slowdown China is having an impact.

As for the charts, the S&P 500 is sitting in a key area of support that will be test immediately on Monday. It is sitting within a point of the important 50-day EMA
and the 2011 high. It is also resting on the intermediate-term rising support line created by connecting the October and November 2011 lows, with the low made earlier this month.


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


When investors get nervous, you can see more selling than buying but when the bearishness gets to an extreme level, it is actually bullish (positive) for the market. The simplified theory being that if everyone expected the market to go down, there would be no one left to sell since they probably already did. The only thing left to happen is for the market to stay flat, or go higher once those bears start to buy again.

This AAII Investor Sentiment Survey was actually taken on Wednesday of last week, just before the big 2-day rally on Wednesday and Thursday. There were only 28% who responded that they were still bullish on stocks (positive) and 42% said they were bearish, and that's a very low 0.68 to 1 ratio. Those are some extreme bearish numbers so it wasn't a surprise that the market rallied for 2 days afterward.


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

The problem is that the 2-day rally may have reversed those numbers, and although the new survey doesn't come out until next Wednesday, our own
TSP Talk Sentiment Survey suggested that investors did in fact become quite bullish after the rally.

The TSP Talk Sentiment Survey came in at 63% bulls, 26% bears, for a bulls to bears ratio of 2.42 to 1. That is an extreme bullish reading - not usually a good sign for stocks going forward. Perhaps TSP Talkers are a little more savvy than the AAII folks? I don't know. As a comparison, the prior week's TSP Talk Survey saw 41% bulls and 50% bears, so that was quite a swing. But I think the change is a direct result of the 270-point rally on Wednesday and Thursday, and if this survey was taken again after Friday's 137-point decline in the Dow, we might see yet another story.

The S&P 500 is sitting on support and could be at a very good buy point if this bull market / positive trend is going to continue. Or we could see support break and watch the charts break down in which case
we may have to start to get defensive. So we have an interesting situation for those who like to manage their TSP accounts funds. I'm leaning toward seeing another push higher next week, but if it turns out that we get a breakdown, I am not too proud to admit I was wrong and get out of the way. let's see what happens.


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

Tom Crowley
www.tsptalk.com
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