TSP Talk – Looks like late January can go either way

Good Monday morning govloop members! Stocks were mixed on Friday as the Dow lost ground, along with the international stocks, while the S&P 500 and small caps each gained about a half of a percent. With a week to go in the first month of 2009, only the G-fund is in green territory in January.

The S&P 500 is basically stuck in a downtrend but has room to move in either direction in the short-term, as it currently sits about 90-points above support and 90-points below resistance.

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

Equally stuck in the middle, the overbought / oversold indicator is just below the neutral area and has room to move in either direction as well. Probably not too significant, but this indicator moved from an extreme oversold level in late November, to a consolidating period just above the neutral level in December, before shooting up to extremely overbought by the first of January. It then nose dived back toward neutral where it seems to have started consolidating again, just below the neutral level.

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

The chart below from SentimenTrader.com is similar to the Rydex chart that I normally post, which shows how much money is being put into bullish and bearish funds.

It shows that during this bear market, whenever mutual fund cash flows (money going into or out of stock funds) reach the positive level, the market seems to become overbought and starts to head back down. The 4-week average just inched into positive territory last week.

Chart provided courtesy of www.sentimentrader.com

The TSP Talk Sentiment Survey came in at 37% bulls, 50% bears for a 0.74 to 1 bulls to bears ration, which keeps that system in the G-fund for this week.

After shocking us in January ’08 with a loss of over 6%, incredibly the S&P 500 is down 7.9% again this January. This is a big week for earnings reports so it could be a make or break week for the market. We could either be surprised with some positive earnings and possibly salvage the month by cutting into the losses, or of course things could continue to go south setting us up for another tough year.

Those reports start today with earnings from American Express, Texas Instruments, and McDonald’s, to name a few. Here is a complete list of companies reporting today, and the rest of the week.

I don’t look at seasonality as a primary indicator, but as bad as January has been, both in ’08 and in ’09, late January has been strong historically, and despite being down 6% last year, the last 6 trading days of January ’08 were up 3.5%. Whatever that info is worth…

That’s all for today. Thanks for reading. These market commentary are updated daily on www.tsptalk.com.

Tom Crowley
TSP Talk