Market Comments

 December 6, 2010

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Today's Commentary                                                     
Looking for a breakout
Stocks opened lower on Friday, after a much weaker than expected November employment report.  Things then drifted sideways for most of the day but a late rally took the indices into positive territory, and by the close the Dow was up 20-points.
                                    
For the TSP, the C-fund gained 0.26% on Friday, the S-fund was up 0.73%, the I-fund added 0.74%, while the F-fund (bonds) was up 0.08%.  For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up.  

The jobs report came in with 91,000 fewer jobs created than expected, which sounds like a disaster, but the market was able to close in positive territory, possibly because it helped justify the controversial quantitative easing plan.  The market just seems to remain buoyant, as long investors know that money is going to be flowing. 

In three days, the S&P 500 moved from the 50-day EMA and a potential breakdown, to pushing up against the recent highs. 

                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Trend lines B and E above may give the index some trouble early this week, but as I mentioned in the Weekly Wrap-up, the Dow Transportation Index, the main market leader, has already broken out to new highs so the bulls are now looking for the S&P 500 to follow.

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

The recent rally into the jobs report sets up a weak scenario for this week.  I don't have the figures, but sentimenTrader.com says:

"When the market rises at least +1% two days in a row heading into a Payroll Report, the market tends to do well on that Friday...but extremely poorly heading into the following week."

 To add to the negative side of the story, the 4th trading day in December, which is today (Monday the 6th) has historically been the start of a bit of a slow period for stocks, before the strong holiday seasonality kicks in.
                                 Chart provided courtesy of www.sentimentrader.com

On the bullish side for stocks, the dollar seems to have rolled over after it tested the neckline of its recent head and shoulders (H&S) breakdown.
                        
                       Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk
                                        
The 50-day EMA acted as support on Friday in the dollar, but the technical damage is extensive and I wouldn't be surprised to see the 50-day EMA breakdown by the end of the week.  That would give an added boost to stocks, particularly the I-fund.

The TSP Talk Sentiment Survey came in at 59% bulls, 31% bears last week, for a bulls to bears ratio of 1.90 to 1.  That means the System remains on a buy signal and 100% S-fund allocation for this week.  While not quite a sell signal, the 1.90 to 1 ratio tells us that the upside may be a little tougher this week as it is just short of the 2.0 to 1 sell signal. 

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

Tom Crowley

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