TSP Talk – Bull or bear?

Good morning. It’s your weekly dose of TSP Talk.

Stocks dropped on Friday, as the TSP stock funds lost 2% to 3% on the day, but ended the week up sharply, and after a slow start, March has returned much of 2009’s early losses. Can it continue week?

A week ago Friday I had said that I wouldn’t want to be in stock market next week (which was last week) and the market, being its usual humbling self, had a great week. I’d say it again for this week but I’m afraid I’ll become the boy who cried wolf because there is a case for the market making a continued move higher, but the path of least resistance appears to be down now.

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

The two indices that can be considered market leaders are the Dow Transports, and the Nasdaq. The Transports have not rallied up to their declining resistance line like the S&P 500, but rather has rallied up to its prior lows, which could now act as resistance.

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

The Nasdaq is doing much better as it not only held the November lows (close enough), but it has now broken above the downtrend resistance line. 1600 has given it some trouble in the past, and that may be the test area.

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

So, with the two leading indices above telling different stories, we’ll either see the transports have a nice rally, or the Nasdaq is about to start heading down. I don’t think they will head in different directions for any length of time, if at all.

The Smart Money / Dumb Money Confidence indicator is once again showing an equal reading from each side. The smart money confidence is heading down however, while the dumb money pushes higher.

I drew a line at across the 54 level, and we can see other instances where the two crossed (dumb money going up, smart money coming down) and while there were short-term tops nearby, none of them occurred exactly at the crossing point – for whatever that is worth.

Chart provided courtesy of www.sentimentrader.com

Our TSP Talk Sentiment Survey system is on a sell signal for this week, after the 47% bulls, 37% bears reading. Any time that ratio (1.27 to 1) goes over 1.00 to 1 during a bear market, we get a sell signal. It has picked up 11.3% in March so far, and with this sell signal it gave Friday, the system has locked in those gains for at least the next week.

Administrative Note: Starting tomorrow or Wednesday we will be offering a new premium service called The TSP & Economic Report. Access to the service will be available free of charge during the month of April.

The author, Ken Bateman (or “Scribbler”) joined our message board at the end of 2008 and asked if he could start a blog. It was obvious that Scribbler had knack for not only writing, but also economics; something that has been missing from TSP Talk.

Ken is a graduate of the United States Military Academy at West Point, with a Bachelors of Science in Economics and a Master’s of Business Administration from Troy University. He also happens to be leading our 2009 AutoTracker returns contest with a +15% return through Friday, March 27.

The first twice weekly newsletter will be available some time this week. It will be free for the month of April, but to gain access you will need to set up a premium service login (also free) if you don’t already have one, as you will have to login to gain access. Click here for more information.

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

Tom Crowley