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| Today's Commentary (Short Term Outlook) |
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Oversold rally, or more? Yesterday, stocks were able to follow through on Monday's rally, with a second consecutive triple digit gain for the Dow. The Dow ended the day up 111-points, and for the TSP stock funds; the C-fund gained 1.30%, the S-funds added 1.04%, and the I-fund led the way with a gain of 1.42%. The F-fund was also up, +0.11%. The S&P 500 is up almost 3% in the last two days and is now flirting with the 20 and 50-day EMA's (exponential moving averages). These EMA's tend to hold for at least a day before they get broken, so I will be surprised if the S&P closes above 1109 today. I marked several other areas where the index dropped below one or both of the 20 and 50-day EMA's, then rallied back above, but stalled on the first attempt. I would look to Thursday as the day if it is going to happen.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Remember, on Friday we get the January jobs report and if this market is going to head back down any time soon, that could be the catalyst. Of course the report could be positive and that could be the catalyst for a break above the EMA's if it doesn't happen today or Thursday. I am covering myself here because I have no idea what to expect. I thought we had a good chance to see a rally off of the deep oversold / overly bearish conditions, but now that we had a 3% push higher and the indicators are coming off of the extremes, it becomes more fuzzy. I think my "unemotional" plan is to stay in stocks if we penetrate back above the EMA's. You can see below that the oversold condition has been neutralized by the rally.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk One of the catalysts for yesterday's rally was an upside surprise in Pending Home sales. After a 16.4% drop in November, December's report came in at +1.0%. You can see below that the Housing Index liked what it saw as housing stocks soared.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk We've now seen three successful tests of the 200-day EMA in the Housing Index in the last two months. This is a busy week for economic data. Today we get the January ISM Services report. It may not be a well known report to the average Joe, but briefing.com gives it a B+ in terms of economic importance. You can compare that to the Jobs report which is an A, and tomorrow's Factory Orders report which is a D+. So, it could be a market mover. The estimates are for a 51.0 and it is being released at 10 AM ET. Things look good but stay on your toes. Nothing is easy in the market. Thanks for reading. We'll see you back here tomorrow. Tom Crowley |