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| Today's Commentary |
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Support breaks, but EMA holds Stocks lost ground again on Friday, breaking a short-term support line, but rebounding off of the 20-day EMA. Will this be a 20-day EMA rally or will we test the 50-day EMA? I'll explain... Friday's share prices reflected the market action of both Thursday and Friday. For the two day period, the C-fund lost 1.59%, the S-fund dropped 1.86%, the I-fund fell 1.42%, and the F-fund (bonds) was down 0.39%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up. The S&P 500 fell through the support line that was created when we had that breakout above 1200 a couple of weeks ago. It is back testing that 1200 area and the 20-day EMA which, if this is "one of those rallies", could be enough to resume the rally. If not, look for a test of the 50-day EMA.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Here's what I mean: In early 2006 the market was rallying at a pretty steady pace with occasional pullbacks to the 50-day EMA that acted as good places to buy. But later in 2006, there was a much steeper rally that found support at the 20-day EMA almost every time it was tested.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Right now we are seeing a 20-day EMA rally so we could be at the next buying level now. The blue arrow in the 2006 chart above shows a similar situation to what we are seeing today. That is, a breakout above the spring highs that initially fails, then pulls back to the 20-day EMA. In 2006 it was a good place to buy, but will it be now? These steep rallies make it very tough to try to buy dips because they are so quick and shallow. Because of that, you get a lot of investors stuck on the sidelines waiting for an opportunity to get in and they don't always get the opportunity. But when you are in that kind of environment, you eventually get excessive bullish sentiment, and we'll talk about that in a minute.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk One thing we did see late last week, was a 2nd PMO sell signal. I have noticed over the years that the first PMO sell signal does not always precede an immediate drop, but two successive PMO sell signals is not usually a good sign. We saw double PMO sell signals during the 2007-2008 bear market and both turned out to be the opportune time to sell before a sharp decline.
If the market takes off to the upside early
this week it could negate the double PMO signal and we could see more of a
pinning action where the PMO and its 10-day EMA move sideways together for a
while. But if we see any weakness early this week, it will be a double
sell signal. Tom Crowley |
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