Stocks bounced around during
last week's holiday shortened week, and ended up with just a small gain
in the S&P 500. The weakness in the dollar has helped the indices,
particularly the international stocks, but unfortunately it has also
helped the price of oil.
For the TSP, the C-fund gained
0.37% last week, the S-fund was off 0.05%, the I-fund was up 1.70%,
while the F-fund (bonds) added 0.21% and the G-fund was up 0.03%.
For the month, the C-fund is now
up 4.29%, the S-fund has gained 5.18%,the I-fund has picked up 6.00%,
while the F-fund is down 0.18%, and the G-fund has added 0.10%.
The S&P 500 flirted with the
2011 high all week, but could not quite make a move above that 1370
area. The rising trading channel remains intact and incredibly, this
tight range has held since before Christmas week.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This past week we have been
talking about whether the sharply rising price of oil will hold the
S&P 500 back from breaking out above the 2011 highs. The
correlation between stocks and the price of oil is interesting in that
the two do tend to move in unison, but at some point the the price of
oil affects the the price of gasoline enough to have an impact on
consumer spending.
Once oil hits $100, and more so over $105, we seem to get to the point
where it is headline news and consumers start to cut back on driving,
and spending. When we cut down on driving, the demand for oil
decreases, and in the past we would see the price of oil ease again. The problem this time is that oil is rising while the demand for oil is already down to levels not seen since 1997.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
What about the supply side?
Despite some aggressive
restrictions on drilling from
the current administration,
which has cut down on oil
production on federal land, total
production in the U.S. has not gone down
because drilling on state and privately
owned land has increased. So if
demand is down and supply is not down,
why are prices rising so sharply?
A lot of oil we produce is not
staying in the U.S. since global
demand has increased
dramatically in the last several
years. If the oil companies
can sell it elsewhere for more,
they probably will, and in fact
that is what is happening.
Then there's the excuse that
speculators are driving up the
price. Perhaps, but as a trade
myself I know that every time
something is bought in an open
market, someone else is selling.
If someone wants to pay more for
something than it is worth, they are
taking a risk, and prices tend to
eventually gravitate toward fair value.
That means speculation is temporary.
Understanding
all of these possibilities is
above my pay grade, but one
thing I do know. When the value
of the dollar goes down, the
price of anything traded in dollars
tends to go up. And if you have
been watching what the dollar has done
in 2012, it isn't hard to understand why
oil, and the price of many commodities,
are going higher. It is down about
5% from the early January high.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If
the dollar finds some support
at the 200-day EMA we should see
the price of oil stabilize and
possibly pull back.
Unfortunately, that probably means the
price of stocks will also ease, but
after going nearly straight up for 2
months, maybe a short-term pullback is
not such a bad thing.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
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This information is for educational purposes only! This is not
advice or are commendation. We do not give investment advice. Do
not act on this data. Do not buy, sell or trade the funds
mentioned herein based on this information. We may trade these
funds differently than discussed above. We use additional methods
and strategies to determine fund positions.
