TSP Talk – Sideways to Slightly Higher

Good morning! It’s your weekly dose of TSP Talk. This market commentary is updated daily on www.tsptalk.com.

Stocks took a little breather on Friday as the Dow and S&P dropped modestly, but the Nasdaq managed to stay positive. The TSP funds were mixed: F and I up; C and S down.

The S&P 500… yawn… has been moving basically sideways for several days, although it continues to ride the upper resistance of the rising wedge(s). Except for the minor pullback earlier in August, this rising resistance pattern has persisted for weeks.

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

The chart is certainly bullish with the trend remaining distinctively up, all of the faster moving averages (EMA’s) being above the slower EMA’s, and there has been a series of higher highs and higher lows. Combining that with the fact that early September has been historically positive leading up to the holiday weekend, and you’d think everyone would be quite bullish.

You’d think, but there has been an increasingly bearishness humming going on around us, which is quite interesting. The “dumb money” is usually quite bullish when stocks are rising and making new highs, but that is not what we are seeing.

Last week we posted that the TSP Talk Sentiment Survey System had a bulls (44%) to bears (41%) ratio of 1.07 to 1. During a bull market, which we are defining as the 50-day EMA being above the 200-day EMA, a 1.07 to 1 ratio is overly bearish (anything under 1.25 to 1), and is actually flashing us a buy signal. Again, very interesting considering the new highs last week.

The AAII Investor Sentiment Survey, also a “dumb money” indicator, came in at 37% bulls, 49% bears for a ratio of 0.76 to 1. Also overly bearish and very unusual in this market environment.

I decided to take a look at the Wall Street Sentiment Survey, which is considered a “smart money” indicator. It can be much more volatile, switching from overly bullish to over bearish, or vice versa, from one week to the next. The latest survey taken this past Friday shows us something interesting. While the bullish percentage has fallen from the prior week, the 24% bearish percentage figure is the least bearish the smart money has been since last January.

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

The “smart money” is supposed to be more savvy than the dumb, and it appears the smart money may not be looking for a pullback as much as us dumb money is – at least according to the sentiment surveys. This is not what we are used to seeing when the market is near yearly highs. As a matter of fact you’d expect the results to be the complete opposite of what we are seeing. Very interesting, indeed.

A quick look at the NYSE overbought/oversold indicator shows us that while still slightly overbought, the indicator is well off of an extreme reading. the 347 reading is actually right in the middle between the rising support line of this indicator, which is connecting the lows, and the upper end of our range near 1000.

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

That’s all for today. I will leave the September seasonality charts (on TSP Talk) for anyone looking to make a decision based on the new month, which brings with it a new batch of interfund transfers, new seasonal tendencies, and the holiday trading.

Thanks for reading! We’ll see you back here tomorrow.

Tom Crowley
TSP Talk.