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| Today's Commentary (Short Term Outlook) |
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Pullback or correction? Stocks continued their slide on Wednesday as the Dow dropped 119-points, and the TSP stock funds lost between 2% and 3.2% on the day. Bonds were up modestly again. The S&P 500 dropped 2% yesterday and is now off 5.3% from its recent high, and has now officially broken the rising trendline, following the Dow Transports and Nasdaq, which both broke earlier in the week.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk It now trades just below its 50-day EMA, but all in all, it is still doing OK, particularly if the early October low holds during this pullback. The problem is, the leader did not hold... I don't want to dwell on it too much, but the Dow Transports ("the leader") has now closed below the rising support for 3 straight days, and as I have mentioned, I look for 3 to 5 closes below support before declaring an official change in trend. It has also now made a lower low, after not making a higher high earlier this month, this is not good but the Transports can be more volatile than the broader market indices so perhaps waiting those 2 extra days before panicking will be prudent. But I have to say that this is an early concern.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The NYSE overbought/oversold indicator (OB/OS) has now broken below that -500 area for the first time since the rally began in March. During the bull market run, -500 has held producing buying opportunities along the way, but during the bear market period from mid-2007 until March of this year, the oversold levels hit -1000 and lower consistantly.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Also notice that the rallies during this year's bull run pushed the OB/OS indicator up close to +1000, but during the bear market it had a very difficult time getting over +500 - and this last market peak also stalled at +500. Regardless, the market is oversold but the question is, are we seeing another bull market buying opportunity, or is the market starting to change its complexion? I am on the sidelines right now only because I did my buy and sell interfund transfers earlier in the month. If you remember I had said I didn't want to get too greedy after making 4% during a 4-day period. I was regretting that some as the rally continued, but it is paying off now. If I had a transfer left in October, I might consider trying to pick up a little bounce here knowing I'd have more transfers when November starts, but this is a dangerous market and you don't want to take too many chances. Those who take risks will either be rewarded handsomely, or bruised badly. I brought up the ARMS Index the other day, an indicator I had abandoned for the last couple of years because of some overly extreme, and unusual readings it had produced, but since this bull market rally started in March, it has actually behaved rather well. It has been fairly consistent in producing a pretty good buy signal when the 10-day moving average moves down to 1.50.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk It is currently 1.45. The question is the same as I asked earlier - are we seeing another bull market buying opportunity, or is the market starting to change its complexion? I guess the real question is, will this 5% pullback turn into a 10% correction? That's all for today. Thanks for reading. We'll see you back here tomorrow! |