09/06/11
Stocks fell sharply on Friday after a very weak jobs report. As you may have heard, the report came in at -0- jobs created in August vs. an estimate of +70,000. By the close the Dow had lost 253-points, and based on the overnight futures, the selling does not appear to be over.
For the TSP, the C-fund was down 2.53% on Friday, the S-fund dropped 3.16%, the I-fund lost 3.00%, and the F-fund (bonds) gained 0.44%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-Up.
After rallying early last week and hitting both the 50-day EMA and the top of the bear flag, the S&P 500 started to pull back and after the weak jobs report, dropped back below the 20-day EMA. A move to the bottom of the flag formation seems imminent and the question will be will the bear flag break down and move to test the August lows?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Although not perfect, the 50-day EMA crossing below the 200-day EMA (the “death cross”) back in mid-August told us to start thinking – bear market. When in a bull market you would expect bullish outcomes from situations such as support hold during pullbacks, etc. But now that we are “officially” in a bear market based on the death cross, we should anticipate negative outcomes.
The 50-day EMA acting as resistance is typical action in a bear market, and a bear flag is more likely to break to the downside, and we may be seeing that happen today if the selling in the overnight stock index futures continues into today’s trading.
The Nasdaq is in a similar situation as resistance pushed the Composite index back below its 20-day EMA.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The selling on Thursday and Friday took the NYSE overbought / oversold indicator back down from overbought levels to being neutral. Being in a bear market we could expect to see this move down to the -500 to -1000 area before reversing.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We have been talking a little about the German stock market, the DAX, recently here and on the message board. Being that it one of the stronger countries financially in Europe, it is not a very good sign that it is breaking down. 
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Europe is still a very vital component in the U.S. economic recovery. If we continue to see the debt situation deteriorate overseas, it will have a big impact on our financial intuitions, and another financial crisis is the last thing we need on top of our weakening economy. Tomorrow there is a very important Supreme Court ruling over there regarding the legality of them bailing out Greece in 2010. It could be another market mover.
As noted in the TSP Weekly Wrap-Up, we are seeing some signs of investors already being sufficiently bearish, which had given me reason to believe that the test of the lows would hold, or if not, provide a panic-like sell-off that can be bought for at least another short-term rally. But I will be very interested in watching how the German DAX performs before making that decision. If it continues to move lower we may have to prepare for possible similar action here in our markets. If the DAX turns around it could be a green light for us.
The TSP Talk Sentiment Survey came in at 39% bulls, 50% bears for a 0.78 to 1 bulls to bears ratio which is neutral and keeps the system in a 100% C-fund allocation for this week.
Thanks for reading! Our market commentary is updated every morning on TSPtalk.com.
Tom Crowley
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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