TSP Talk – Testing the “Fake-Out”

Stocks lost more ground last week as European debt concerns remained in the headlines,with Spain joining the 7% 10 year bond yield club – an area that has meant bailouts for other European countries.

Italy, Spain and Greece will continue to be the news to watch, but of course we have a Super Committee in the headlines here in the U.S. and they have a very big deadline coming up this week.

For the TSP, this week’s prices include the Friday, November 11 holiday action so the stock fund returns are a little better than the market actually performed last week. The C-fund lost 1.87%on the week, the S-fund dropped 1.20%, the I-fund fell 1.55%, while the F-fund(bonds) added 0.02%, and the G-fund was up 0.04%.

For the month, the C-fund is down 2.81%, the S-fund has lost 3.09%, The I-fund has fallen 5.37%, while the F-fund (bonds) is up 0.14%, and the G-fund has gained 0.09%.

Last week we were watching the triangle / pennant formation on the S&P 500 chart, and we talked about the tendency for these patterns to give a “fake-out” in one direction, only to quickly move back into the triangle and breakout in the other direction.

Well, here we are. On Thursday the triangle broke to the downside, and on Friday there was a weak attempt to rebound,so this is getting serious.

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

I believe the S&P 500 is in desperate need of rallying on Monday or Tuesday of this coming week to recapture the inside of the triangle, or this will be a clear breakdown.

The short-term indicators may be helping the situation as many are in oversold territory.

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

These types of extremes usually bring about a quick rally or, if we don’t see a rally, it could be an indication that the recent new uptrend off of the early October lows is over and we have to get back on defense. That is why Monday and Tuesday of this week are so important. If the market cannot rally in the face of these extreme oversold readings and the broken triangle formation, then we have some problems.

This will all possibly hinge on the ability of the “Super Committee” to come to some agreement on deficit reduction in the next few days. Unfortunately I don’t have a lot of faith in them, but I will still wait to see how the market reacts before making any allocation decisions.

This is Thanksgiving week there is a very strong positive bias on the day prior to, and the day after Thanksgiving Day, but the Monday after the holiday weekend has a very negative bias.

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

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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