Breakout of rising wedge
Stocks rallied sharply yesterday and despite finishing well off the highs,
the Dow was still up 76-points on the day. Strong earnings from Intel
and JP Morgan were said to be the catalysts, but interestingly enough, both
of those stocks closed the day in negative territory.
For the TSP, the C-fund gained 0.72% yesterday, the S-fund made 1.13%, and
the I-fund was up 0.93%. The F-fund (bonds) also managed a small gain
at +0.04%.
I understand that I messed up yesterday's chart showing the rising wedge.
Sorry about that. I had mentioned that rising wedges tend to break to
the downside, but that the recent action in the market would make it tough
to bet against a breakout to the upside. Well, it didn't didn't take
long for the bulls to make it happen.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
These wedges can also give us a fake out near the apex before the true move
but again, this market has been very strong and the only reason this might
be a fake out is if the market is overbought, and sentiment is overly
bullish. If it is a fake out, it won't take more than a day or two to
fail. After that, we have to assume the breakout is the real deal.
And while sentiment is bullish and the market is overbought, the readings
are not very extreme yet. The NYSE overbought / oversold indicator
just pushed over +600. Overbought, yes, but we have seen it go much
higher since the market bottomed in March of 2009.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
There are many ways to gauge sentiment, and here is one from
SentimenTrader.com. This
indicator is a compilation of several indicators on their site, and is
basically saying that 46% the "smart money" is confident with this market
and 58% of their "dumb money" is confident.
Chart provided courtesy of www.sentimentrader.com
This compilation indicator hits an extreme when one of these levels moves
above 60% while the other is below 40%. You can see that neither are
in that situation so we don't have an extreme reading. That tells me
the market could have more room to go on the upside. If that dumb
money indicator keeps moving up and hits 60% while the smart money falls to
40% or lower, then we will have a little more to worry about.
When the market opened higher yesterday breaking out of the wedge, I decide
to go ahead and put in an interfund transfer to buy into the stock funds .
But as we got closer to the interfund transfer deadline and the Dow was up
about 130-points, I decided to cancel the IFT. I
really hate to chase, but I may have to. I will look for a pullback,
but if the rising
wedge breakout holds, I will have to make a move.
The intermediate term (weekly) chart looks pretty good for the market and I
think it is just a matter of picking the right spot to get in.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
But I will be on the lookout for a break down, as opposed to a pullback.
Pullbacks to support can be bought. Breakdowns below support and / or
a break of the uptrend still has to be sold.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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