Nice reversal, but the dollar does it again

The new week began as last week ended - with volatility.  After being down 150-points earlier in the day, the Dow closed strongly and finished with a modest 40-point loss.

The S&P 500 futures were up sharply as I wrote Monday's commentary on Sunday evening, but by morning, the futures were off nearly 2% from their peak, and S&P 500 opened down nearly 1%. 
                                
For the TSP, the C-fund lost 0.11% on Friday, the S-fund fell 0.16%, the I-fund dropped 1.53%, and the F-fund (bonds) added 0.14%.  

The S&P 500 closed down just 1.64 after being down well over 1% in early trading.  The sharp reversal off of the 50-day EMA was impressive and could lead to some follow-through upside action this morning, but it is now trading below both the lower support line of the recent trading channel (A), and the new descending resistance line (D).


                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

That old support line (A) could now act as resistance.  We do want to use that 3 to 5 day test period before calling it an official break. 

The dollar was easily able to push above the 200-day EMA in early trading yesterday, and that helped give the stock market some trouble, but it did pull back from the highs and that gave stocks an opportunity to close strongly, which they did.
                        
                       Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk

If the dollar can hold above the 200-day EMA for a few more days, it could easily stay there for at least the intermediate-term - weeks to months.  But like the S&P, we want to give it a 3 to 5 day test.

Yesterday I said I wasn't going to keep bringing up the OEX put/call ratio indicator (the smart money) but since I saw that SentimenTrader.com talked about it yesterday, I figured I'd better share their findings.  We've seen this chart, and we knew it was a very rare reading - one of the highest in 20-years (in number, lower on the chart).  But of course SentimenTrader.com was able to put some historical numbers to it...
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

               
                                   Chart provided courtesy of www.sentimentrader.com

Here is what they had to say:

"The market's returns were quite poor, starting almost immediately.  Over the next month, the index's maximum gain averaged only +1.3% while the maximum loss was nearly five times that amount.  Only one of them showed a gain greater than +2% at any time over the next month, while all of them but one showed a loss greater than -2%.

"There were only three times when the 5-day average and 10-day average were both as high as they are now (12/29/99, 8/25/00 and 2/6/07).  Over the next month, the S&P's return was negative each time, by -7.5%, -5.9% and -2.9%, respectively.  Its maximum gain during those month-long trades averaged only +1.2%, while its maximum loss averaged -6.3%."

Not good.

As you can see in the seasonality charts down below, late November and early December are not normally the best times to be invested.  I'd say the current environment justifies saying that this is not a "normal" year, what with the Fed pumping money into the system and European countries dropping like flies.  We'll just have to take it day by day with our charts and indicators to help us try to see through the fog.

Thanks for reading!  We'll see you back here tomorrow.