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| Today's Commentary (Short Term Outlook) |
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Running out of reasons Stocks closed slightly higher on Friday, after the market shook off the early concerns of the Fed raising the discount rate. The Dow closed up 9-points, and the other indices also had modest gains. The Fed raised the discount rate on Thursday after the market had closed, and the futures reacted by taking an immediate nose-dive so it appeared we were going to be in for a tough Friday. However, with the help of a benign CPI report, investors bought the early weakness and it appears the bulls remain in charge. For the TSP, the C-fund was up 0.23%, the S-fund gained 0.42%, the I-fund lost 0.28%, and the F-fund was up 0.04%. For more on last week's returns, please see our TSP Weekly Wrap-up. With 3 closes above the 50-day EMA, a new PMO buy signal, and breakout above the bear flag, we are running out of reasons to remain bearish - at least from a technical analysis standpoint. The indices may be overbought, but in a strong bull market, that does not always mean the market will pull back. And the strength that this market has shown despite some bad news (rate hike) and the technically bearish bear flag, I would have to stay this market is acting strongly.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk A closer look at the S&P 500 shows that the bear flag did not result in a breakdown, as is typical, but rather it broke to the upside. It is trading above the 50-day EMA after rebounding off of the 200-day EMA a couple of weeks ago.  I was pretty bullish when the market reversed at the 200-day EMA, but having fallen below the 50-day EMA, and a glaring bear flag put me on the defense. But things have changed for the better, and I am now interested in buying dips, as long as the S&P 500 can stay above the 50-day EMA. You can see that the NYSE is overbought and that might keep the market from heading straight up from here, but a strong market - which we are probably in - could just take a little day or two breather to come off of the overbought levels.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk During 2009, when the market was on a relentless ride higher, the NYSE hit this overbought +700 area several times, but the market did not always pull back to give us an opportunity to buy. That was one reason I missed a lot of the early 2009 gains the market gave us. As far as which funds may do best if the rally can continue; I would still be reluctant to be heavily in the I-fund for more than just short stints. The dollar is in an obvious uptrend now and that will slow down the I-fund, BUT the dollar may be ready for a short-term pullback here as it reached the top of the new ascending trading channel.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk I don't know if it will pull all the way back to the bottom of that trading channel, but there is room for a pullback and the I-fund could benefit in the short-term. That would be a trade, not an investment. Bond yields are looking like they may be breaking out of an inverse head and shoulders pattern. Rising bond yields equals lower bond prices, which is bearish for the F-fund.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk We'll have to see if we get any kind of a pullback in yields before a possible breakout. Sometimes the inverse head and shoulders patterns come back to test the middle of the head before breaking to the upside - but not always. I am not convinced for a minute that our economy is ready to completely recover. We have issues. Some I understand, some I don't. There's the housing market, personal and national debt, deficits, unemployment near 10%, interest rates that will likely be rising, etc., etc. They seem to tell us that something has to give. Whether the deep losses of the 2008 bear market cleared that out as far as stocks go remains to be seen. We have regained a lot of those losses, but the marker indices are still almost 30% off of the all time highs. As a technical analysis, seeing things like the S&P 500 recapturing the 50-day EMA, the 200-day EMA holding on a corrections, PMO buy signals, and sentiment readings just coming off extreme overly bearish readings, I am willing to take some chances in the markets even if the fundamentals may not agree. We can always be back in cash (G-fund) within a day or two if we want or need to. I'm not sure if I am going to be a buyer right here, right now, but if we see a pullback to the 50-day EMA on the S&P, I am going for it. As I said, if it does goes back below it, that's our queue to go back into safe mode so our risk to reward ratio is pretty good. Thanks for reading. We'll see you back here tomorrow. Tom Crowley |