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Good start
- what's next?
Stocks were down
on Friday, but we did a see a nice intra-day recovery off of the lows.
The Dow gave up 23-points, well off of the 98-point earlier deficit.
For the week, the S&P 500 gained over 1% which bodes well for January, and
for 2011, as we talked about
last week.
For the
TSP, the C-fund lost 0.18%, the S-fund
fell 0.25%, the I-fund dropped 0.25%, and the F-fund (bonds)
jumped 0.41%.
For more on the weekly and returns, please see our
TSP Weekly Wrap-up.
The S&P 500 continues to ride the
trend higher as buyers stepped in again after the early test of the
ascending trading channel support line.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
The index is now 114-points above the 200-day EMA, which I would considered
overly stretched, and while that does not mean the positive trend will end
soon, it could potentially mean a test of one of the other EMA's (20 or 50)
is coming. I am looking at 1230 as a nice, convenient target for a
pullback. I wish it were that easy.
I have posted this 2006 / 2007 chart before as an example of how long these
trends can last. Waiting on the sidelines for a pullback could be very
frustrating in this type of environment. There was a 6-month wait
between tests of the 50-day EMA from August 2006 to February 2007. And
it took a news event to scare investors (China's Shanghai Index crashed 10%
in one trading day in late February) but as you can see, the rally resumed
soon after as the 200-day EMA held.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
Looking for the potential of the current rally takes us to the weekly chart
of the Nasdaq 100 Index, one of the market leaders. Look at the size
of this inverse head and shoulders pattern (H&S). It starts in late
2007. Now the problem here is that H&S patterns can test the middle of
the head before breaking through the neckline. If that happens we
could actually get a correction all the way down to near 1400 on this chart.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
But as you may be able to see, last week's bar on the above chart did break
above the neckline of the H&S. That could mean we will not see a test
of the head.
For the short-term, this doesn't help much because there is a lot of room on
both sides of that neckline, but looking out longer-term, the potential is
great. We're talking about a possible 50% gain from where it is now.
In the short-term, the dollar is rallying and has broken above the bullish
flag pattern. This has helped put some pressure on stocks recently,
and in particular the I-fund. If this breakout holds, the I-fund
becomes much less desirable compared to our US stock funds, C and S.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
Our
TSP Talk Sentiment
Survey System gave a neutral reading for
this week after the 52% bulls to 33%
bears ratio of 1.58 to 1. When we
get a neutral reading the system remains in the fund it was in during the prior
week, which is the S-fund. So this week the system will be in the
S-fund.
Thanks for reading! We'll see you tomorrow.
Tom Crowley
Click here to discuss today's Market Commentary
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