Selling the news
                         
Stocks took a much needed break last week as we saw some "sell the news" reactions ater the release of some major earnings reports.  This is not a surprise as it is typical behavior when stocks run up into the earnings season.

The part that makes me nervous is that the market leaders, Dow Transports, the Nasdaq, and small caps, are lagging.  The Dow and S&P 500 were actually up on Friday, but not the leaders.

The Dow Transports went from flying high to a steep pullback down the 50-day EMA in just 3 days, and it will be important for the 50-day EMA to hold because the 200-day EMA is a long way down.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
                                  
For the TSP, the C-fund gained 0.24% on Friday, the S-fund was a laggard again losing 0.37%, and the I-fund gained 0.98% after more weakness in the dollar, and the F-fund (bonds) added 0.18%.  For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up.  

The S&P 500 climbed back into its ascending trading range (red lines) early on Friday, but had a hard time staying there as it is back testing the lower end.  The 20-day EMA provided strong support on Thursday and the question is whether the S&P can hold that support, or will it follow the leaders and move closer to the 50-day EMA? 
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Right now we are in a bull market and in bull markets you should anticipate a bullish outcome and buy the dips.  If this is going to become something more bearish, the charts will let us know.

We are seeing some interesting short, long, and intermediate-term developments in the put/call ratios.  Below is the 10-day moving average of the CBOE (dumb money) and OEX (smart money) put / call ratios, with the daily CBOE put / call ratio stuck between the two.
                 
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

- The daily CBOE is down near support where pullbacks have been able to find support and rebound.  That could be a bullish sign for the very short-term. 

- The 10-day MA of the CBOE is just off of the recent two-year highs where rallies have peaked and pullbacks began.  That seems to be a bearish sign for the short to intermediate-term. 

- The smart money OEX put / call ratio is a concern as they are bearish, but have been for nearly two months so it has not been helpful to us up to this point.

- Now let's take a look at the 10-day moving average of the long-term weekly chart of the CBOE and OEX put / call.  The OEX numbers are still a concern but you can see how wide the spreads are on that indicator as the smart money can move from bull to bearish and back in a fairly short period of time. 

On the other hand, the CBOE (dumb money) trends a little more cleanly, and while the 0.80 area is near multi-year highs, during prolonged bull markets the ratios can move all the way up (on the chart - lower in number) to near 0.40 as we saw in the late 1980's and late 1990's.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Are we in that kind of bull market now?  I don't know.  The smart money may be trying to tell us - no, but because our Sentiment Surveys are coming out so bearish while the S&P 500 is just a few points off of a 2 plus year high, tells me that perhaps we (the dumb money) are pessimistic enough to keep this rally going a while longer.

And speaking of the TSP Talk Sentiment Survey, it came in at 39% bullish, 52% bearish last week for a bulls to bears ratio of  0.75 to 1.  That is actually a fresh new buy signal (anything 1.25 to 1 or lower is a buy in a bull market).  Pretty surprising.  So, the Sentiment Survey System's allocation will remain 100% S-Fund this week.

Thanks for reading!  We'll see you tomorrow.

Tom Crowley