Good evening, Fellow TSPwire Tactical Investor!

Based on results of our financial models next week does not look so good for stocks. I, S and C Funds all triggered “Sell” signals. Out of those three, C Fund got the lowest and I Fund got the highest but still negative scores.

F Fund came to the finish line with “Hold” signal (our models returned equal number of “Sell” and “Buy” signals).

After considering all factors we decided to move all funds from stocks (C, S and I Funds) into bonds (F Fund).

Recent News v.s. Our Take:

Issues with sub-prime mortgages rambled mortgage-backed securities.

Our take: bonds that are backed by sub-prime mortgages suffered a very hard hit and went down 7% in one day. Because of market inefficiency those types of events tend to “spill” to the rest of the bond market. While in perfect world F Fund should not be affected by sub-prime backed securities, we still might observe F Fund price to be dragged down because of the “spill effect”.

U.S. Economy is slowing down. Investors bet on what Fed will do next.

Our take: During the course of the last week investors were changing bets back and forth on what and when Feds will do next. On Tuesday, investors were 100% positive that Feds will reduce overnight interest rate before summer. Later in the week bets changed indicating that investors were only 60% positive. One way or another, chances that interest rate reduction will happen within the next few months are very high. Note: rate reduction should boost F Fund prices.

“Will the market hit the floor? Let the market hit the floor!” Moving averages during market corrections.

Out take: Earlier this week we mentioned that historically, during market corrections, indexes either touched or went through 200-day moving averages. (Note: 200-day moving average also called “correction floor”.) Sell-off, that we recently observed on the market, was the sharpest drop since September 2001 yet indexes have not touched 200-day moving average. For example, S&P500 has to go down another 30-40 points before it will touch the 200-day moving average.

On another note, some analysts called last week the “rebound week” because most indexes went one percent up. In our opinion that “rebound” was more artificial then real because it was impacted by a high volume of short-sell orders which had to be covered by hedge-funds (especially on Thursday).

Unfortunately, we don’t think that markets are at the turning point just yet.