TSP Talk – Don’t trust the early action

Despite the sell-off after the downgrades in Europe on Friday, the TSP stock funds were able to hold onto some modest gains for the week.

Economic data in the U.S. was mixed but Europe is still in the headlines calling much of the shots – at least in the early trading. What’s interesting is how the market has been behaving during the day the last couple of weeks. We have seen a pattern of traders fading the open. That is, if the market opens lower, buyers seem to step in and take it higher. If it opens higher, sellers are taking profits. One of the reasons for this could be that the European markets close about 11:30 AM ET and traders become more focused on the U.S.

For the TSP it was a sea of green last week. The C-fund gained 0.90%, the S-fund was up 2.01%, the I-fund made 0.61%, the F-fund (bonds) picked up 0.54%, and the G-fund was up 0.03%.

For January the green continues. The C-fund is now up 2.59% for the month, the S-fund leads the way with a gain of 3.70%, the I-fund has added 0.20%, the F-fund (bonds) is up 0.41%, and the G-fund has a gain of 0.06%.

This past week we have talked about the strength we have been seeing in the charts, but that some of our indicators are not showing a favorable picture. While caution may be warranted, price action in the chart is the best indicator. After breaking above the inverse head and shoulders neckline, a very bullish accomplishment, the next challenge for the S&P 500 will be taking out the October high.

It made 4 attempts at it this past week before the news out of Europe sent stocks reeling early Friday, but the S&P managed to close back with the range of the prior 3 trading sessions.

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

We have posted the chart below several times this year as the inverse head and shoulders pattern continues to play out. The question will be whether we will test the neckline before resuming any rally.

The market leader is the economically sensitive Dow Transportation Index. It too has created a very clean inverse head and shoulders pattern and Friday’s early selling had the index down nearly 2% on the day before rebounding into the close, finishing with a modest 0.6% loss. But that sell-off could be the test we have been looking for.

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

That may be a little too much for the bulls to ask for – a one-day, intraday test of a multi-month head and shoulders neckline, but we should get support in that area just below 5100. Since the Transports are the leader, we’d look for the S&P 500 to behave similarly.

The short history of the Martin Luther King Jr. holiday has shown mixed at best returns the week after the holiday, and even into the end of January.

In the image below, I’ve indicated the sectors that affect our TSP C, S, and F funds, and small caps stocks seem to come out with the best record after MLK Day, while bonds do well during this coming week, but don’t always hold onto those gains into the end of the month.

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

I noted the particular weakness in the Nasdaq 100 stocks, which are the largest U.S. tech stocks. They have only been positive after MLK Day 9% of the time.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley
Weekly Wrap-Ups Archive
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The legal stuff: This information is for educational purposes only! This is not advice or are commendation. 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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