TSP Talk – Stocks Seem to Want to Go Higher

Stocks seem to want to go higher

After starting the week with some negative action, stocks rebounded strongly on Wednesday with the help of a positive ADP weekly employment report. The rally continued on Thursday and ironically, after a much weaker than expected November monthly jobs report, the market moved up again on Friday. It seems as if the market is just looking for any reason to move higher, despite the many warning signs that we see around us.

For the TSP, all three stock funds gained over 3% last week with the C-fund jumping 3.03%, the S-fund gaining 3.15%, and the I-fund picking up 3.09%. Bonds (F-fund) lost 0.49%, and the G-fund added 0.04%.

The month of December is off to a good start with the C-fund already up 3.76% in three days of trading, the S-fund has gained 3.99%, and the I-fund jumped 5.41% as the dollar has pulled back sharply this month. The F-fund is down 0.67% in December, while the G-fund is up 0.02%.

The S&P 500 gave us a bit of a scare in late November as we saw some technical breakdowns in the chart, but it was very important to see that 50-day moving average (EMA) hold and after 4 tests, the S&P bounced off of it convincingly. The S&P is back in the rising trading channel between trend lines A and C, which is another good sign. The next test is for it to make a new high – a close above line E. While I do have some concerns, I am encouraged because…

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

… the market leader, Dow Transportation Index, has already done so.

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

One of the concerns for me is the continued lack of confidence we are seeing from the smart money, and the possible excess confidence from the dumb money (that’s you and me.) When the smart money is below the 40 level, while the dumb money is over 60, it gives us a warning sign and as you can see, has triggered short-term market peaks over the last year, and actually has been a good indicator for many years.

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

The sentiment of our TSP Talk readers is getting close to overly bullish (which could be bearish for stocks) but the TSP Talk Sentiment Survey System did not quite give us a sell signal, so it remains on a buy signal and 100% S fund at least through next Friday. The bulls (59%) to bears (31%) ratio was 1.90 to 1, and a sell signal does not get triggered until we see 2.0 to 1 or higher. The system is now up 30.7% for the year.

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

Tom Crowley

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