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| Today's Commentary (Short Term Outlook) |
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Follow the leader - who
is it? Stocks rallied on Friday as the Dow gained 73-points and the TSP stock funds picked up between 0.5% and 0.9%. The F-fund added 0.13%. The market is in a very interesting situation right now. The chart of the S&P 500 looks very strong with the 20-day EMA above the 50-day EMA and the 50-day above the 200-day EMA, and all are rising. It is back in the rising trading channel and the PMO has given a buy signal. The chart's issues are, volume has been drying up during this recent leg up and the S&P seems to have made at least a temporary double top.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Trying to predict what happens next would have us looking to the market leaders and the sectors that are dictating the economic conditions. A look at the Dow, the most recognized index of the U.S. market, and we see that it continues to breathe in and out while trending higher, although it has moved up to the top of its trading channel and may be ready to "exhale". It is not really a "leader" since it only consists of 30 of the U.S. largest companies. 
The Nasdaq is one of the leaders and the trend can technically be considered broken because of the slightly lower low created, and now it seems to have found resistance at the overhead trendline which runs parallel to the descending support line.  The Dow Transports, the other market leader, is in a similarly tough situation. After a double top in October, it is making another attempt to breakout, but with the new lower low, it may be witnessing the start of a new downtrend like the Nasdaq.  We haven't looked at financials lately, but they aren't looking much better It looks as if we have a head and shoulders pattern forming (which is bearish) and the tops of the shoulders and the neckline have now formed a noticeable parallel downtrend.  The Housing Index has also made a head and shoulders pattern, found support at the neckline and rebounded, but is now flirting with the descending resistance at the shoulder tops.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk So, while the chart of the S&P 500 does not look bad at all, we have resistance in many of the other charts, including bearish head and shoulders patterns, double tops, and new downtrends. The 10-day moving average of the ARMS Index hit 1.5 at the end of October and we said it could be a nice short-term buying opportunity, which it turned out to be. Since then the indicator has moved up over the 1.0 level, nearing 0.75, which could be a test for any further upside action. Perhaps by some time this week it will get there.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk I don't want to make any strong predictions at this time. This market could go either way in the short-term, and with the futures up solidly as I write this Sunday night, it looks as though we could have a strong open Monday morning. But don't let it determine your decision. Monday mornings tend to be driven by emotion, particularly from investors who may have missed last week's rally, so I'd be more influence by Monday's close and Tuesday's action to see where we might go next. Thanks for reading. For more info on last week's action, check out our Weekly TSP Wrap-Up. We'll see you back here tomorrow. |