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| Today's Commentary (Short Term Outlook) |
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Angle of repose Stocks rallied sharply on Monday as the Dow, although off the highs, finished the day up 112-points, and the TSP stock funds picked up between 1% and 2%. The F-fund (bonds) managed a small gain. As if on queue, the S&P 500 seems to be rebounding off of its 50-day EMA, but if you notice below, yesterday's rally peaked at the 20-day EMA. Whether this is the start of another push up toward the upper resistance line or just a short term bounce with designs on moving lower as we saw in June (circled in blue), remains to be seen. The wedge is getting more narrow and while you can make some money off of the bounces, you have to believe that we see an eventual break of this rising wedge.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Back in 2003, stocks blasted off of the March low at an angle that the market could not possibly sustain. During the summer months in '03, the steep trends broke but the rallies continued, only at more manageable angles. It wasn't until early 2004 that we saw any kind of break in the uptrend trend as there was a lower low made and a multi-month consolidation began.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk We could be looking at something similar this year. We will just have to keep an eye on the moving averages and the trendlines for clues as to when this rally will end. There are still a lot of disbelievers out there, and from a fundemental outlook, I'd be one of them, but that is one reason why I prefer technical analysis over fundamentals. It's never easy, but the charts should tell us the story pretty well. Taking a look at the market leaders shows us that everything seems to be in order. The Dow Transportation Index is in a clear bull market and like the S&P 500, it has found support at the bottom of its trading channel. Any more downside action and we'd have to start being concerned, but right now, this looks like another nice "buy the dip" area.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The Nasdaq's angle is a little more steep and may be tough to maintain, but it is also staying within its trendlines and until that breaks, the bulls are in charge.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The market won't sustain this sharp incline forever so we just have to be on the lookout for signs of the breakdown. If you are an intermediate-term trader (weeks to month) you can sell when the support gives way. If you are a short-term trader (days to weeks), you would do the same, but you might also look to sell if the indices move back up near the top of the trading range and take profits. That's all for today. Thanks for reading. See you tomorrow! |