Momentum faces seasonality
Stocks were mixed on Friday as financial stocks took the Dow down 31-points,
but technology stocks were able to push the broader market indices into
positive territory as the S&P 500 and small caps were up modestly, and the Nasdaq was up 1.4% with Apple, Google, and Amazon leading the way.
For the TSP, the C-fund gained 0.20% on Friday, the S-fund added 0.05%, while
the I-fund lost 0.60% as the dollar rebounded. The F-fund (bonds)
dropped 0.28%.
For more on the weekly and monthly returns, please see our
TSP Weekly Wrap-up.
The
S&P 500 moved down to the lower end of the rising wedge on Friday, but by
the close it was back above the upper end. This chart has been
moving relentlessly higher with short bouts of sideways action that seem
to rejuvenate it. Can it continue?
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
The MACD is still showing a negative divergence which likely lead to a
pullback at some point, but this indicator is not very good for timing tops
and bottoms. The last major divergence didn't end well for the S&P,
but the rally did go on for weeks after the divergence was first noticed.
Considering the
lack of selling, the NYSE overbought / oversold indicator is just slightly
north of the neutral line. Nothing extreme at all...
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
As we have
mentioned many times, the Dow Transportation Index is probably the main
market leading index, and then comes the Nasdaq. The Nasdaq 100 Index
is an index of the U.S. largest 100 technical stocks in the Nasdaq
Composite. The Nasdaq 100 is really surging as stocks like Apple,
Google, and Amazon.com are doing very well this year. The index just
made a new 52-week high breaking above the spring highs, and on Friday it
closed at its highest level since late 2007.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
If the Nasdaq 100 is in fact going to lead the way, this would be a great
sign for the S&P 500 and the rest of the market as new highs would produce
very significant gains from where we are now.
The momentum may run into some trouble this week as earnings season gets
into high gear.
I posted this
data last week also, and it shows how the market has a tendency to pull back
during earnings season if the S&P 500 was hitting 3-month highs, as we are
now...
And historically, the next couple of weeks in October have confirmed this
earnings season weakness as 7 of the next 8 trading days have been down more
often than up over the years.
Chart provided courtesy of www.sentimentrader.com
The TSP Talks Sentiment
Survey came in at 51% bulls, 36% bears for a bulls to bears ratio of
1.42 to 1. That is higher than we've been seeing lately, but it is still below the system's sell signal of
2.0 to 1, so the system remains on a buy signal and 100% S-fund for this
week. The system is up over 20% in 2010.
So we have a market that has a lot of momentum and it is about to rumble
with some weak historical seasonality. The question is, can the S&P
500 hold onto its positive trend under these conditions? I don't know
for sure, but the upcoming elections and the next wave of quantitative
easing by the Fed could continue to keep fuel the rally.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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