TSP Talk – 2008 is Making Us Gun Shy

Stocks put in another typical holiday trading session on Friday as the major indices moved higher on very light volume. The TSP stock funds gained 0.5% to 1.2%, with all funds, including bonds, moving higher.

The S&P 500 is still unable to climb above the overhead resistance and this would be a negative except that this week should continue to see light volume holiday-type action, with the big money remaining on vacation.

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

As we talked about last week, light volume trading could also have its drawbacks as any news could send the indices reeling up or down. One event that would surely move the market is the December jobs report. It is usually released on the first Friday of the month at 8:30 ET, but apparently with the holiday on Thursday, the December report will not be released until Friday the 9th of January. That’s probably a good idea.

The NYSE remains in overbought territory as the consolidation above the -0- level continues. As I talked about a week or two ago, these overbought consolidations in the bear bear market, have led to steep sell-offs once they have broken down.

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

If you are trying to decide what to do over the next week, I have out together a 12-year list of daily market returns during the last two trading days of the year, and the first three of the new year. The return on the top next to the years is the total 5-day return.

During the last 12 years:

– 7 of those 5-day periods ended with a gain, and 5 experienced losses.
– 8 of the first trading days of the new year were negative. 4 were positive.
– 9 of the last trading days of the year closed in negative territory. 3 were positive.
– Only 3 of the 2nd trading days of the new year were negative. 8 were positive. 1 was flat.
– Day 3 of the new year was split – 6 up, 6 down.
– The 2nd to last trading day of the year was up 7 times, and down 5.

I have been very reluctant to try to play this holiday seasonal strength as the 2008 bear market has made me quite gun-shy. I have not done the math yet, but I would think that I was in the G-fund at least 75% to 80% of the time in 2008, yet my account is down 35%. That is unbelievable to me and it is a reminder to just how bad things can get, even when some of the indicators are telling us to take some chances.

Because of that, I can’t seem to get myself to buy with the market still in overbought territory, whether or not it may be the right move. I would like to see some extreme oversold conditions or some evidence of a better technical picture before committing. The latter could mean missing some upside action, and the former could mean stepping in front of a falling knife (which is what I did in the fall) – hence the gun-shy attitude.

That’s all for today. Thanks for reading! Our market commentary is updated daily on TSPtalk.com.