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Today's Comments (Short Term Outlook)                             Printer friendly

Rally reached 2nd highest target Stocks sold-off on Friday as bigger was not better.  The Dow lost 0.90%, the S&P dropped 0.70% and small caps gave up a modest 0.21%.  The I-fund shed over 1% despite the weakness in the dollar. The S&P 500 is backing off of the overhead resistance and the PMO indicator is also turning downward toward a sell signal.  Support has held up so far for the upward trend of the recent rally, but any weakness this week and that trend is in jeopardy.                      Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk Back in mid-March I talked about being in a bear market, but I said that I "believe a playable rally is imminent."  It was, and I wish I had played it better.  I picked up a few percentage points but I was concerned that the rally would run out of steam sooner than it did.  My thinking was - best case scenario, the long-term trend line could be a where a rally could peak.  The 2nd peak goal was the 200-day moving average, which was achieved.  But I chickened as the S&P approached the faster moving averages.  There can be explosive rallies in a bear market but it is tough to get overly aggressive when the indices are trading below the 200-day moving average.  We are starting to see a little bit of a breakdown now that we have rallied up toward the 200-day moving averages (simple and exponential.)  So, is the rally over, or is this a little pullback within the recent uptrend?  The excessive bullish sentiment we talked about last week is a concern as that is what takes the steam out of rallies.  The overhead resistance is a problem.  The price of oil is out of control and is a big problem.  Late Friday FedEx cut its expectations for fourth-quarter earnings, citing higher fuel prices and a weakened economy.  That is a concern. With earnings season all but complete, and the Fed winding down the interest rate cuts, there could be lack of catalysts for stocks going forward. It doesn't mean we will make new lows - although it is possible - but without a catalyst we could just chop around in a trading range with, with the low being about 1260 and the high being 1425.  Since the S&P is coming off of that high level and is now 1388, there is more room on the downside.  I am remaining cautious. That's all for today.  Thanks for reading.  See you back here tomorrow. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us. Prior Day's Market Comments (see archives in left column menu for earlier comments)                                05/09/08                       Financials throw the rally a test Stocks saw a modest rebound yesterday after Wednesday's 200-point sell-off.  We have seen a decent rally off of the March lows but the financials may get in the way again. I mentioned yesterday that the S&P 500 is still below 200-day simple moving average (SMA), but I did not show the chart.  Here it is.  You can see that we are starting to see a reversal down off of that SMA but the 20-day exponential moving average acted as support yesterday.  The 200-day MA is obviously more of a force than the 20-day, but it's interesting to watch how the indices dance with these moving averages.                     Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk The recent uptrend is still intact despite the sell-off on Wednesday, but we should be getting a little test of the lower end of that trend very soon.  After the bell yesterday, AIG reported a very weak earnings report and the financial sector should pay the price.  This will be the test. The financial ETF, XLF, is in a similar situation as the S&P and today we may find out if the rally is strong enough to shrug off some bad news, or if this is the start of another move toward the lows.  By the way, AIG was down over 7% in after hours trading yesterday.                    Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk The SentimenTrader.com confidence indicator shows that the "dumb money" indicator reached 67.  Anything over 60 is a concern.  In conjunction with the 60+ dumb money reading, we would normally look to see the smart money indicator move below 40 before we get a sell signal.  It is currently 50, so while this not a bullish sign for stocks, it is not an official sell signal yet.                               Chart provided courtesy of www.sentimentrader.com The TSP Talk Sentiment Survey system came in at a pretty bearish 0.75 to 1 bulls (38%) to bears (51%) ratio, which is historically bullish for stocks.  In the past this has been a decent time to buy, but this year these signals have not been very consistent.  That's all for today.  Have a great weekend.                               Chart provided courtesy of www.sentimentrader.com ------------------------------------------------------------------------------------------------------------------- ** By joining our email alert list you will receive an email each time we initiate a transfer or change our market outlook.  You may also receive an email each Monday morning reminding you that our comments are updated daily.  We will always send out these emails prior to making the transfer myself but we can not guarantee you will receive it in time to make a transferide to follow our transfers in your own account, you do so at your own risk.  There is always a possibility for a loss in your account.  These transfers could come very often and you may have to act quickly to make the deadline.  Please consider your investment strategy before taking any advice or making any transactions.  By reading the contents of TSP Talk.com and accepting the email alerts, you must agree to the Terms of Service.  Thank you. 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