TSP Talk – Stock Market Rally Now 2-Months Old

Good morning. It’s your weekly dose of TSP Talk.

Stocks managed to close higher again on Friday and the S&P 500 had yet another positive week last week. The rally is getting a little old, but you have to respect the continued strength.

The S&P 500 has had many reasons to turn back down over the last several weeks, but every dip has been bought and new highs continue to be made.

I talk a lot about the charts and indicators, and how news headlines should not make your decisions, but one thing I have been overlooking for many weeks now, is that the trend is now up. The long-term trend remains bearish (down) but we are obviously in an intermediate-term uptrend. How long it will last, I don’t know. This rally is now two months old, and we have seen some prior intermediate-term trends end after two months.

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

Will two months prove to be meaningful this time, I don’t know. Fighting the trend is not a great way to make money, as some of us have seen. But we are in a volatile environment with many economical and geopolitical influences that might have us a little more nervous about being invested than normal.

Fear however, is not a reason to be bearish. On the contrary. The best time to buy in 2009 turned out to be when the AAII investor Sentiment Survey saw an astounding 70% bearish reading in early March. This rally has pushed it up to 44%, which is actually quite bearish itself during any “normal” market environment, but it is obviously well off of the overly fearful levels of March.

Conversely, the current bullish percentage in the AAII survey is 36%, compared to about 20% back in early March.

The recent TSP Talk Sentiment Survey results were 43% bullish, 45% bearish. That 0.96 to 1 bulls to bears ratio is not surprisingly one of the least bearish readings we’ve had all year. There were only three weeks that had higher ratios.

The strength in the dollar has lost some steam over the last several weeks. The chart is looking more and more bearish as you can see that the weekly chart is forming another head & shoulders pattern (which is bearish). This is no surprise to those who believe that the U.S. may be spending and printing money a little too aggressively.

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

The surprise has been that it has held up as long as it has, and we have speculated in the past that it was not necessarily a sign of strength for the dollar, but rather weakness in other currencies.

What does this tell us? It could be an indication that over the next several months that the I-fund could outperform the C and S-funds. Not that the I-fund will be strong or even be up for that matter, but in relation to the C and S-funds, it could do better.

I’ll wrap this up by saying the we are due for a pullback – but the current trend remains higher and those fighting it (including myself) have paid the price. How long this intermediate-term will last is the question, but I would thing that if you made 25% to 30% in two months, you have to be pretty satisfied and you could be pushing your luck.

Thanks for reading! TSP Talk market commentary is updated daily on www.tsptalk.com.