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Today's Commentary
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Breakout
Stocks opened sharply higher on Wednesday, but then doubled the gain
after a positive
ISM report. By the close the Dow
had jumped 255-points.
For the TSP, the
C-fund jumped 2.97% on Wednesday, the S-fund gained 3.45%, and the I-fund
made 2.83%. The F-fund (bonds)
fell 0.30%.
As we have been saying, this late summer, pre-holiday
week trading is usually accompanied by light volume and the indices can
easily be pushed around, and that's what was happening yesterday as
something like the normally benign monthly ISM report could move the Dow
100-points within a minute or two.
Unfortunately, the week after the holiday
tends to see a reversal, so we will see if this rally has any follow-through
today and/or Friday after two important employment reports, and if the gains
hold next week as well.
The S&P 500 did finally close that open gap - and then some. The
recent downtrend was broken, but the descending longer-term trend and
falling EMA's loom as resistance above.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
We obviously got the breakout from the consolidation rather than the
breakdown. We knew it would likely be a sharp move. We just
didn't know which direction, but again, these pre-holiday moves may be a
fake-out so I will remain cautious.
Again, we may have seen the break
out of
the recent short-term downtrend, but the longer-term trend remains down...
I will repeat what I said
yesterday, there can be short, sharp rallies up toward that upper
resistance before the H&S pattern breaks down like we saw in 2007-2008, so I am not ruling out a possible move up
toward 1100, even if this H&S eventually breaks down. Yesterday's
rally may be the start of that sharp that will try to suck us in.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
It is all adding up to be a
possible fake-out, but the market rarely plays out exactly the way I think
it will so I will not be surprised if I am completely wrong - just
disappointed that I would have been on the wrong side of the move. In this
case missing a potential move to 1100.
The dollar has formed an inverse head and shoulders pattern (H&S) and
appears to be attempting to test the 200-day EMA, and / or the middle of the
head of the H&S.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
If this is instead a breakdown of the dollar, I will be more inclined to
believe the rally in stocks.
Today we get the weekly initial jobless claims report, the last one before
Friday's monthly jobs report. This pre-holiday week may have more
fireworks in store for us.
It is easy to get emotional when the market is rising or falling 2% to 3%.
I even briefly considered using one of my September IFT's to buy into the
stock funds after the seeing the rally. But I reread my commentary,
which I write when the market is closed, and I realized that I expected some
irrational market activity this week, I saw the possibility of a short-term
move to 1100, and I also expected it to eventually fail. So why should
I change my outlook when the market is jumping? Only time will tell if
trying to act rationally will pay off. Now if you want to
gamble to try to catch the rest of the move to 1100 (assuming it comes)
that's one way to go, but it's risky.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Here is some seasonality chart for September and the
holiday:
.
Chart provided courtesy of www.sentimentrader.com
Returns-wise, September is actually the worst month of the year,
historically. At least it was between 1950 and 2005.
Chart provided courtesy of www.sentimentrader.com
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Thursday is the 2nd trading day
in September:
Chart provided courtesy of www.sentimentrader.com
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