TSP Talk – Coiling continues

Good morning. Here is our weekly TSP update taken from TSP Talk’s 2/17/09 daily market commentary:

The market got off to a hot start in February as the S&P 500 gained 5.2% during the first week of the month. Unfortunately, those gains dissolved last week as the S&P gave back 4.8%. Where to next?

The wedge pattern remains intact and as the index gets closer the the apex and the trading range tightens, it should be getting ready to uncoiling one way or the other. The break through the lower end of the wedge last Wednesday was short-lived as the market rallied bringing the S&P 500 right back into the wedge. Whether that action was a prelude of things to come, or a “false breakout” that will lead to a move higher, remains to be seen, but as I write this Monday evening, the futures are down just over one percent and if that holds into the open (Tuesday), it would put the index back below the rising support line of the wedge again.

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

The MACD still looks promising, but again in this oscillating market, it may not be relevant. The more relevant indicator is the stochastics (STO), which is heading down but not yet oversold.

The overbought/oversold indicator remains relatively neutral and it too is forming a wedge pattern. I assume it will break in the same direction as the market.

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

We have been watching various sentiment surveys and have seen some interesting and somewhat contradictory results. The recent Wall Street Sentiment Survey, which can be considered “smart money” hit 10% on the bullish percentage.

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

That is one of the lowest reading in years. The interesting thing about the prior readings near 10 were that they came during the bull market, and they were actually pretty good times to be a buyer. I don’t know if the 10 reading in a bear market will produce similar results, but keep in mind that the Wall Street survey is much more volatile than other sentiment surveys and could reverse by the end of the week.

President’s Day is not one of the better holidays seasonality-wise. Friday’s 82-point loss played right into the chart (-1), and today (+1) is kind of mixed as the day averages a negative return from 1968-2004, but is up about half the time.

Chart provided courtesy of www.sentimentrader.com

I played the F-fund to start this month but as I mentioned, I was only looking for a short-term bounce in bonds. Bond yields are in an obvious new uptrend and that is bad for bond prices, and the F-fund.

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

Anything can happen, particularly if stocks start to breakdown, but the pullback in yields found support at the 20 and 50-day moving averages, approximately 2.75% for the 10-year note, as well as the lower trendline, so I am done with that F-fund trade.

Thanks for reading. These commentary are updated daily on www.tsptalk.com

Tom Crowley