TSP Talk – Seeing some good signs, but too early to say

Good morning govloop! It’s your Monday morning TSP Talk.

Stocks were off to the races on Friday and the market broke a 4-week losing streak last week as the S&P 500 gained over 5%. While the TSP funds are still all in the red for 2009, the Nasdaq poked its heading into positive territory. That’s a good sign.

The S&P 500 broke out of the smaller wedge, and above the 20-day moving average as the momentum seems to have turned. But, the top of the larger wedge now lies in wait, as does the 50-day moving average (DMA). If the 50-DMA, currently at 877, is penetrated, the next resistance is the 900 area.

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

Looking at the indicators above, I noted last week that the MACD indicator is showing a pretty good divergence as the recent pullback did not take the MACD down with it, at least not as far down as the lows it made in mid-January.

We also have another bullish PMO crossover, but it is too early to call since this could still be part of an oversold bounce.

You may have heard the Nasdaq and the Dow Transportation Index being referred to as the market leaders. Technology is always a key to our economy, and the transportation stocks are a great indication of the state of our economy as they deliver the products.

The Nasdaq has been acting stronger than the S&P 500 as it is now trading above the 20 and 50-day moving averages. It looks like this week we will see a test of the upper end of the wedge it too has been forming. The PMO indicator is also flashing a crossover buy signal.

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

The Dow Transportation Index has been lagging the rest of the market, but so far has successfully tested the lows made in November. The 50-day moving average and the declining trend line now stand in its way and like the Nasdaq, we should know soon enough how this will play out.

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

We have seen a good start but until these two charts prove that they can take out the technical resistance, we may want to remain cautious in our TSP funds. The economic news is still bleak and we have the possibility of a “sell the news” reaction to any finalization of the stimulus package.

The bear market rules still apply. Two or three days to the upside has been about all the market has been able to muster since the Santa Claus rally ended at the beginning of the year, and after Thursday and Friday’s 4% rally, that should be tested pretty quickly.

So, we are seeing some positive technical signs in the charts but we are not out of the water yet. If the market does take off from here, then those who have been willing to take on the risk will be rewarded. But the risk does remain high, until we clear some hurdles.

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