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And now the Fed Stocks rallied early yesterday and this time held on to those gains into the close as the Dow closed up 64-points, but the gains were larger in the broader market, and in particular the market leaders. For the TSP it was a green day. The C-fund gained 0.78% yesterday, the S-fund rallied 1.42%, and the I-fund was up 1.03%. The F-fund (bonds) added 0.20%. Yesterday the market leader Dow Transportation Index closed at its highest level since late 2008. It had moved above the April high a couple of times recently, but yesterday it was able to hold on and make that new closing high. That is a good sign for the S&P 500.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The other main market leader, the Nasdaq, had already made new highs in October, and it continues to rally. Another good sign.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk If the S&P 500 is going to follow the leaders, it will have to rally another 2% just to test the April high. Double tops are usually good places to be a seller, but since the leaders have broken out to new highs, although the Transports are just barely in new high territory, it is a good sign that the S&P 500 might be able to breakout to new highs as well, and at the very least, test the April high.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The market has come a long way in a short period of time so you would think that, logically, a pullback is due. But the short-term rising trend remains intact, and the longer-term trend is up - although the index is very close to that long-term resistance. I have a good news / bad news situation in market sentiment. The put/call ratios of both the smart money and the dumb money are painting a fairly bullish picture. The dumb money of the Equity put/call ratio (blue graph) is getting more bearish (which is actually bullish for stocks.) The 10-day moving average has not hit that 0.70 level, which seems to be a good area to be a buyer, but you can see that the lows on that indicator have been trending higher since May.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk On the other hand, the smart money of the OEX put/call ratio (green graph above) continues to get more bullish (which is bullish), and you can see that the smart money is usually most bullish near market bottoms. Does this mean the market is about to take off, rather than pull back or correct? This data from sentimenTrader.com shows us what has happened in the past when the 10-day moving average of the OEX put/call ratio (smart money) drops under 0.80 (under in number, above 0.80 in direction on the chart) as it is now.  Chart provided courtesy of www.sentimentrader.com pretty good numbers for the bulls, so that was the good news. The bad news is that SentimenTrader.com's Smart Money / Dumb Money Confidence Indicator hit the ratio that normally initiates a sell signal. When one indicator goes above 60 while the other goes below 40, it is a new signal.  Chart provided courtesy of www.sentimentrader.com In this case the smart money is below 40 and the dumb money is above 60, and that is a sell signal. Why this is telling such a different story from the smart / dumb money put/call ratios, I don't know, but I do know that these numbers can get much more extreme before we see a top. If you look closely, you can see that during the April high, the dumb money indicator was closer to 80, while the smart money was just below 30, so there is still possible room for each of these to go before we might see a correction. Today is a big day as far as the Fed is concerned. The FOMC meeting ends at 2:15 PM ET and we should have more information on the size and / or increments of any quantitative easing. Any surprises will obviously affect the market, and we could always have a "sell the news" reaction even if the news is what is expected. The election results are still coming in as I write this and I don't think there were any real big surprises. Again, we could have a "sell the news" reaction after all of the "buying the rumor" we've had. But any selling will have to deal with a rising trend that has been relentless lately. Thanks for reading! We'll see you tomorrow. Tom Crowley |
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