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Today's Commentary (Short Term Outlook)
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Reversal?
It may be
temporary, but the market did a classic reversal on Friday and that
"could" spark a short-term rally, provided the news stays benign.
The Dow closed up 10-points, but it was down 160-points as late as 2 PM
ET on Friday afternoon, before bouncing off of the 200-day EMA.
For the TSP
stock funds, the C-fund was up 0.29% on the day, the S-fund gained 0.34%, and the
I-fund actually dropped 1.47% as the international funds could not keep
up with the late rally in U.S. stocks, and the late decline in the U.S.
dollar on Friday, but it should carry over to help the I-fund today. For
more on the weekly returns, see the
TSP Weekly Wrap-up.
The S&P 500
is giving us a mixed bag of options as we have some positive signs, and
some negative. The first noticeable positive sign was the reversal
made off of the 200-day EMA. This late rally / reversal could trigger a short-term
continuation rally simply
because the momentum has changed. By today's close however,
who knows what investors will be doing?
Another positive is the positive divergence in the MACD indicator.
While the index made a lower low, the MACD did not confirm that move and,
like we saw in July, could be a sign that the worst is behind us.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
Now for the bad news. Yes, we
had that great reversal at the 200-day EMA, but Friday's low gave us a
pretty clean new short-term downtrend to deal with. The longer-term
trend remains up since we have not had a lower low yet, and we are still
officially in a bull market since the S&P still trades above the 200-day EMA and the 50-day EMA is above the 200-day EMA, but there is new
resistance overhead in this new descending channel (see below), to go along with the
resistance we could see from the overhead 20 and 50-day EMA's near 1100.
(see EMA's above)
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
The small caps of the Russell 2000 also reversed nicely, closing higher
Friday and had clean support at the 200-day EMA. This is not "the"
S-fund but the Russell is the benchmark for small cap stocks.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
A few more observations, although I am reluctant to interpret
them too much because if this current bull market is going to turn into
a bear, these extreme readings I am showing will not be quite as
extreme. They are only extreme in bull markets...
The put / call ratios are showing us that the "dumb money" continues to get
more and more defensive while the smart money is coming off their overly
bearish position.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
The NYSE overbought / oversold indicator is oversold, but off of
the lower reading we saw at last Friday's market low. That
divergence could be a positive sign as sometimes when the market
experiences a lower low, but the NYSE does not become more oversold,
there is a tendency for a rally to follow.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
All good signs, but again, these are good signs in a bull market, not
necessarily when a bull market is turning into a bear market so we don't
have the answers just yet. We could get a rally off of what we are
seeing, but there is some reason to believe that any rally will be
short-lived.
If the market moves up early this week, I will really want to see
it hold and not roll back over in two or three days. After a big
reversal day like we had on Friday, it is common to see a gap up opening
the next trading day, but as I write this on Sunday night, the futures
are not indicating anything like that as they are relatively flat.
Perhaps traders are still at their Super Bowl parties.
Here's a repeat of last week's sentiment survey results...
The TSP Talk Sentiment
Survey came in at: bulls 36%, bears 54% for 0.67 to 1 ratio.
The last time we saw a ratio this low was the week of July 13, 2009.
The market rallied 7% during that week.
The last two times we saw ratios in the 0.70's:
Nov 2, 2009: +3.20%
Oct 5, 2009: +4.51%
The bad news is, before that we saw very low ratios throughout the bear
market that did little to help the market. So, if we are starting
a new bear market, this may not be a buy signal. But if this bull
market still has anything left, we should see a decent bounce soon.
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Thanks to everyone who donated to our
Haiti earthquake
fundraiser through MercyCorps. We raised several hundred dollars
and I'm sure it will help someone, somewhere. I will take down the
promotion on the site, but I'll leave this one link below for anyone who
still wants to contribute. Thanks!
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Monday is the 6th trading day in
February:
Chart provided courtesy of www.sentimentrader.com
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