TSP Talk – The bailout confirms recent rally

This is becoming redundant, but it was another wild week on Wall Street. We saw an average daily move of 167-points in the Dow with 4 of the 5 says being up or down triple digits.

The big story of course was the announcement of the bailout in Europe. Whether this is a real fix or not, it does buy some time and it will allow us to focus more on the economic developments in the U.S., which has actually been pretty good.

For the TSP, the C-fund gained 3.79%, the S-fund jumped 6.06%, the I-fund was up 6.27%, while the F-fund (bonds) was up 0.16%, and the G-fund was up 0.03%.

After five consecutive negative months, the TSP funds are trying to play catch up, and assuming the market doesn’t collapse on Monday, October should be one of the best months we’ve seen in a long time. With one day to go, the C-fund is now up 13.74% in October, the S-fund has gained 16.93%, the I-fund has added 15.15%, the F-fund (bonds) is down 0.35%, and the G-fund is up 0.13% for the month.

The S&P 500 came into the week on the overbought side after running up from 1075 to about 1225, but it had consolidated for a week or two before this past week’s blast off. Volume picked up which could be a sign that the bigger money managers are ready to embrace that the bear market is over and they want to start putting some cash to work.

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

There is no doubt that the indices are overbought, extended, and may need to pause for at least a few days, but this recent breakout could be setting us up for another leg higher. These corrections happen all of the time and what we wait for is to see which way they want to break after they consolidate.

In 2008 we saw it break to the downside, but in 2009 and 2010 they broke to the upside, and last week’s action may be telling us that the 2011 correction and consolidation also wants to make a move to the upside.

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

As I mentioned last week, we are heading into November and December, two of the strongest months of the year historically, and the S&P 500 has not closed in negative territory during the 3rd year of a president’s term since 1939. It is back in positive territory and the charts, while overextended and in need of a little pullback, look like they do want to rally into the end of the year.

I think we will be revisiting the European problems again sometime down the road, and of course we have our own issues coming up in November with the Super Committee trying to come up with viable spending cuts / additional revenue to keep us from more credit downgrades, but the charts are trying to tell us that the outcome could be positive, at least in the next few weeks or longer.

I like to think that the fundamentals come out in the charts first. Yes, the market rallied after the bailout in Europe, but this rally started 4-weeks before that news. If the market is looking good, look for the good news to follow.

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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