Dow 10,000? Yawn

Good morning! It’s your govloop weekly dose of TSP Talk. This market commentary is updated daily on www.tsptalk.com.

Stocks were flat to modestly higher yesterday during the light volume holiday trading. The Dow closed up about 21-points, while the Nasdaq was down slightly. The TSP did not post new share prices because of the holiday so they will combine today’s action in with Monday’s and give us a final price later today.

The S&P 500 was up a respectable 0.4% and posted a new 52-week closing high. As I mentioned, volume was very light so I don’t want to make too much of the action, but I did notice that the new high is not being confirmed by the MACD indicator again. It’s a negative divergence and something to keep an eye on.

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

I am back in defensive mode despite the continued strong trend upward. There are some cracks in the bullish case but fighting this bull market has not been a very good strategy this year. I’ve made some decent gains with a few trades over the last few months and I am not in the giving back mood. It may cost me by missing out on a rally but I’ll wait for another set up near support, although with the ever decreasing range of the rising wedge, I would not be surprised if support doesn’t hold during the next pull back.

New highs are good of course, but when I hear the all of the hoopla again about Dow 10,000, it bores me. The cheerleaders on CNBC will do anything for ratings, because after the wild year in 2008, this year has been rather dull volatility-wise – despite the big gains. Maybe Dow 10,000 will get people excited? I doubt it. We’ve seen that show many times over the last 10 years. The first time was in 1999 and the thrill is long gone.

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

Now, Dow 14,000 might get us excited.

The dollar remains below resistance, oil has been on the rise, and while the bond market was closed yesterday, on Friday bond yields shot up pushing bond prices and the F-fund down.

You can see below that the yield on the 10-year note had broken below the 3.25% support (shown as 32.5) last week but on Friday it jumped back above support and the 200-day EMA, and now trades just below the 50-day EMA.

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

The downside trend is still intact but it wouldn’t take much more upside action in yields to break that resistance and move above the 50-day EMA. That would be bad for the F-fund. The F-fund is in a good risk / reward position similar to where stocks were at the beginning of October. It could be a good buying opportunity, but if yields don’t stop moving up very soon, all bets are off for the F-fund.

Last week’s TSP Talk Sentiment Survey came it at 55% bulls, 34% bears for a 1.62 to 1 bulls to bears ratio. That is a neutral reading so the system remains on a buy signal this week, but the 1.62 to 1 is the highest (most bullish) ratio since December of 2007, which could be a warning sign. An official sell signal is not given in a bull market until the ratio hits 2.0 to 1.

That’s all for today. Trading volume should pickup the rest of the week and we will see if the bulls can continue the momentum higher.

Thanks for reading! We hope to see on TSP Talk.com.

Tom Crowley
TSP Talk