Today's Comments (Short Term Outlook)                             Printer friendly

Follow-through The market acted rather well yesterday, following Wednesday's big rally with more upside action on fair volume.  Not bad - but can it last? With Microsoft leading the way with strong earnings after the close yesterday, stocks may have been given the boost they need to keep the rally going for a few more day.  perhaps until the Fed meeting and next interest rate cut on Wednesday of next week, or possibly next Friday's jobs report.  I am not ready to say we have seen "the" bottom, but this seems to be a playable bounce, although it is a dangerous game to play short-term bounces in downtrends.  Be careful. Assuming (ass u me) the rally does continue, I am looking at four potential targets for the upside rally.  Resistance point #1 below is the neckline of the head and shoulders pattern.  This one could be a tough nut to crack as it is part of the bearish head and shoulders pattern package.  But the long kangaroo tail made in August may be too quick of a reversal to be effective.  That's why I added #4, which could also give us the effect of a neckline.  Resistance point #2 is the long-term support line - turned resistance, and point #3 is the new downtrend resistance. The long-term sell signal shown in the chart is decisionpoint.com's signal showing where the 50-day moving average is crossing below the 200-day moving average.                                      Chart provided courtesy of www.decisionpoint.com  The snap-back rally is easy to understand now that we know what caused the major decline in the international markets on Monday, the day U.S. markets were closed.  If you hadn't heard, it turns out that the world-wide sell-off was triggered when investment bank Societe Generale uncovered a $7.1 billion trading fraud by a French guy who earns $150K a year.  What a mess, and embarrassment for markets world-wide.  Remember, the Fed cut rates over this sell-off.  Now that the truth has been revealed, what will the Fed do next week?  Do they still need to cut another 0.50% on top of Tuesday's 0.75% cut?  Or, have they determined that they overreacted and will back off?  The TSP Talk Sentiment Survey made a slight move away from the extreme bearish ratio, and is now at a more typical bearish stance given the current circumstance.  But the 1.06 bulls (43%) to bears (41%) ratio is still a buy signal and that leaves the system in the S-fund for next week.                          Bottom line:  The rally could continue but stay cautious.  Nothing in the charts indicates we are out of the water yet. That's all for today.  Have a great weekend! Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us.