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| Today's Commentary (Short Term Outlook) |
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Stocks, bonds and the dollar Stocks were hit hard yesterday after the release of some less than exciting economic data. The Dow plunged 203-points while the TSP's C, S, and I funds lost 2.6%, 3.1%, and 3.0% respectively. Investors ran toward bonds as the F-fund gained 0.38%. The S&P 500 remains in an uptrend but is down 5% from its recent peak. This is not a bad thing, yet. We have been hoping, and positioning ourselves for some sort of pullback. But we don't want to see things get too much worse or we may have to take a longer-term bearish outlook. Right now, as long as the charts don't break, I am expecting this to eventually end well. As of now, this is just a healthy pullback in a bull market. I have been saying for a few days that I would love to see the gap at 1016 get filled which, if timing goes just right, would coincide with the rising 50-day EMA (currently 1017), and the rising bullish support line. The time is now for that to happen.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk That would produce a very nice risk / reward buying area as a break below that would be a negative for the chart technically. So, buying stocks when the S&P 500 drops between 1015 and 1020 is not a bad idea, but it's with the understanding that if it goes below 1010, as an example, you'd have to admit defeat, get out and take a small loss. Now, I know how this works. The market rarely cooperates with what we think will happen, or what we want to happen. But you have to have some kind of plan in place. If the market rallies right out of the gate this morning after the jobs report, we will obviously miss this opportunity. But that's the way timing goes. Sometimes you win. Sometimes you don't. The dollar continues to be an important catalyst for the stock market, and I believe whether or not the dollar breaks above the descending resistance will determine if the stock market remains in its up trend or not.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk A rally up to the 50-day EMA for the dollar, currently near 78, should be enough to take the S&P 500 down to fill that open gap we mentioned above. If the dollar heads back down from here, it could send stocks higher without a test of the S&P's bullish support line. We mentioned on Monday that the yield on the 10-year T-note was flirting with breaking down, and I opined; "Whether the support breaks or holds may depend on what happens to the stock market. If stocks continue to pull back, yields may follow and the F-fund would benefit." Yesterday the yield did break down as stocks pulled back, and the F-fund did benefit. The question is, which came first? Did the yield break down (bond prices up) because stocks were weak (flight to safety) or was it the other way around?  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Anyway, there is a little dance going on between stocks, the dollar, and bonds, and they will probably push and pull each other. If the dollar moves down, I'd anticipate seeing stocks and bond yields moving up (bond prices and F-fund down). If the dollar moves up, I'd expect stocks and bond yields to go down (F-fund higher). The September jobs report will be released this morning and the latest estimates are for a loss of 175,000 jobs with an unemployment rate of 9.8%. If the numbers are not in line with estimates, expect some serious fireworks today. This will affect the dollar thus the dance will begin. If we see a move down to the 1016 area on the S&P 500 by the transfer deadline, I may have to take on some risks and do some buying. But if goes down much further than that, I won't take the chance. The TSP Talk Sentiment Survey came in at 37% bulls, 50% bears for a 0.74 to 1 ratio, which keeps the system on a buy signal for next week. That's all for today. Thanks for reading. Have a great weekend! |