TSP Talk

Although we saw a bit of a bounce on Friday, the major stock indices, and their TSP stock fund counterparts, lost ground again last week. Concerns over the fiscal cliff remain the center of attention, and Friday’s rally came after some signs out of Washington that the two sides may not be too far apart on a compromise.

Last week saw the S&P 500 fall sharply below the 200-day EMA on Wednesday, and also fell below a longer-term rising trend line (red). As you can see, after the trend was broken, the S&P 500 retested the line twice, but it was not able to get back above it. This old support line, turned resistance, could be the line in the sand whether the current bull market resumes, or if it is time for another bear market environment.


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

It is said that a 10% pullback is considered a correction, and a bear market is a 20% decline. I would say that is kind of rear-view mirror analysis. I use the 50-day EMA and the 200-day EMA as my guide. If the 50-day EMA is above the 200-day EMA, I consider it a bull market. If the 50-day EMA falls below the 200-day EMA, then we have a bear market. That could also be rear-view mirror analysis if the S&P 500 moves straight down, but if we get the typical decline, then a bounce, decline, bounce, etc, the 50-day EMA can cross the 200-day EMA well before we see a 20% loss. You can still make money timing the market in a bear market because rallies can be very sharp, but it is much tougher, and more risky. For now, it’s still officially a bull market, but any time we are trading below the 200-day EMA and the rising trend line, caution flags are waving and should have our attention.

The bull or bear may depend on what comes out of Washington, and I don’t know how much faith we can have in them to keep us from going over that fiscal cliff.

Good luck, and thanks for reading. We will be back after the weekend with a full market commentary on www.tsptalk.com/comments.html.

Tom Crowley
www.tsptalk.com
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