TSP Talk – Rally Extremes

Stocks rose sharply last Monday, heading right up to the 2011 S&P 500 highs, and spent the rest of the week dancing above and below that breakout level. The economic data was fair to good and the price of oil has been able to remain below $110 a barrel.

For the TSP, the C-fund gained 0.35% last week, the S-fund lost 1.44%, the I-fund dropped 0.63%, while the F-fund (bonds) added 0.20% and the G-fund was up 0.03%.

For the year, the C-fund is now up 9.36%, the S-fund has gained 11.53%,the I-fund is up 10.97%, the F-fund has made 0.90%, and the G-fund has added 0.26%. The S&P 500 finally broke above the 2011 high (1370.58) last week, but it was not able to close above it (1369.63). The rising support has continued to hold, and the battle between a breakout and a breakdown continues.

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

I am going to repeat something we posted late last week that I feel gives us a clue as to how long this rally can last without a pullback: We haven’t had a test of the 50-day EMA (exponential moving average) since before Christmas and the S&P 500 has now closed above its 20-day moving average for 50 consecutive days.

We have seen 3 other such streaks since the bear market bottom in March 2009. According to our friends at sentimenTrader.com:

  • In April 2010 the streak lasted 49 days.
  • In November 2010 the streak lasted 52 days.
  • In January/February 2011 the streak lasted 40 days, but there was only 1 close below the 20-day. Ignoring that, the streak lasted 57 days.
So we’re reaching the limits of the number of days buyers were able to sustain the streaks in the prior instances. Also, as of Tuesday the S&P had managed to close in positive territory 35 times during the past 50 days. The index also reached 35 positive out of 50 trading days on 01/11/10, 4/19/10 and 2/10/11, indicated by the red arrows in the chart below.

The last two also coincided with long streaks above the 20-day average as noted above. All three of them saw the market top out almost immediately.

Chart provided courtesy of www.sentimentrader.com

The all important Dow Transportation Index, which is a market leader, has been pulling back as the price of oil has been rising. It seems to be in a new downtrend and it was looking as if the 50-day EMA might be helping to act as a bottom in this correction. But the 20-day EMA has held back the attempts of a rally and now the top of the descending trading channel is getting in the way.

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

Early this coming week this index will be put to the test. Will it fall back to the bottom of the trading channel, or will it break above it and the 20-day EMA? This could be a major tell for the broader market indices. The price of oil, and the action of the U.S. dollar could play a key roll in what happens.

Administrative Note: James ‘RevShark’ DePorre is offering 2 weeks of free access to his TSP Timing Newsletter and Daily Afternoon Commentary from March 1 thru March 14. Please click here for more information.

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

Tom Crowley


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