TSP Talk – Rebound Completed?

Weekly TSP Wrap-up from TSP Talk

Rebound runs out of steam

The TSP funds were tossed around last week as stocks rebounded earlier in the week, but headed down again by Friday.

The jubilance of the Greece bailout on Monday turned to doubt as the euro continued to trade lower. There is lingering concern that the debt and credit issues are not isolated to just Greece, and could spread to other European countries, and potentially the U.S.A. There is even talk from some European countries about dropping the euro.

So while the American consumer and corporate America are showing signs of life, the financial condition of the country itself may be holding back a recovery. Taxes are almost certainly going to have to increase if spending is not reigned in as deficits are hitting records. This is all weighing on Europe and playing out right now, and we are not too far removed from the mess.

For the week the TSP stock funds rebounded as the selling toward the end of the week did not take away all of the earlier gains. The C-fund gained 2.3%, the S-fund was up an impressive 5.1%, and the I-fund added 1.28%. Bond (F-fund) also managed a gain of 0.31%, and the G-fund was up 0.06%.

For the month, all of the stock funds remain in the red. The C-fund is down 4.19%, the S-fund is off 3.95%, and the I-fund continues to be hit hard by the rising dollar, and is down 8.25% in May. The F-fund is up 0.75% while the G-fund is +0.13%.

Taking a look at the chart below, the S&P 500 is trading below the 50-day EMA, which is a warning sign telling us to be a little more cautious. In our daily commentary we have been talking all week about the tendency for an index to trade within the range (red lines below) of a large “shock day” as we saw on Thursday, May 6, for several weeks.

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

That is my plan of attack at the moment. That is, consider buying, as a trade, near the bottom of that range, and selling near the top. That is nearly a 10% range so the trading swings may be high in the coming weeks.

Of course if the S&P 500 does test the lower end of that range and cannot hold, then we have a different situation, and potentially something more severe than a market correction. If the S&P 500 can move above that range for more than a couple of days, then we would suspect new highs could be created.

That’s a lot to throw at you, and a lot of possibilities. This is not the time to be a buy and holder, in my opinion, as there are so many polarized potential outcomes, and some are downright nasty.

Keep an eye on the Euro and the European stock markets. The U.S. market will likely move in unison, and the way the euro has fallen despite what was initially perceived as good news, is alarming. I think things could hit the fan in the next week or two.

Tom Crowley
www.tsptalk.com