Today's Comments (Short Term Outlook)                             Printer friendly

Think bear, but rallies still possible Another day of selling in stocks on Friday, giving the S&P 500 yet another week in the red.  That makes 4 of the last 5 weeks that have been negative.  This is a bear market and we shouldn't be surprised, but we want to be ready when the rallies do strike, as it may be our only hope of making any money this year. The 50-day exponential moving average (DMA) has been acting as resistance all year, and we are starting to fall from that level once again.  This puts the S&P 500 in the middle of the recent trading channel with the upper end being somewhere near 1380, and 1255 being the lower end.  Being in the middle, the short-term can can go either way but the longer-term is still in a downtrend, and we must respect that until proven otherwise.                                 Chart provided courtesy of www.decisionpoint.com During the bear market of 2000 through 2002, this cycle of sell-offs, followed by rallies up to the moving averages, was rather consistent.  What wasn't consistent was at which moving average the rallies stalled.  Here's a chart of September 2000 through December 2001 as an example.  During a bear market the faster moving averages tend to stay below the slower moving averages.  Sometimes the bear market rallies made it up to the 200-day moving average, while other times it only made it to the 50-day, or even 20-day, before heading back down.                                  Chart provided courtesy of www.decisionpoint.com You will notice that in April of 2001, the S&P 500 seemed to put in a double bottom after a successful test of the March low.  The index rallied strongly moving past the 20 and 50 DMA's before hitting the 200 DMA, and then reality set in.  The bear market was not over and there were lower lows ahead.  However, that rally took the S&P 500 from just under 1100 to about 1310 for an impressive gain of over 20%.  Not a bad run for a bear market.  That's why I say we want to approach this market with the understanding that we are in a bear market, but there will be opportunities.  Also notice how long that rally lasted - about 7-weeks.  The next leg down after that lasted about 4-months.  Even trading just 2 or 3 times per month can catch those moves.  Long-term, we are in a bear market but we could see decent bear market rallies.  For the short-term, we are in the middle of a trading range with the overbought/oversold indicator near neutral, so we could go either way.  This week we get the ISM and jobs reports.  Their results may dictate the short-term direction. That's all for today.  See you tomorrow! If you missed last week's latest newsletter from TSPshareholder.org's please be sure to check it out.  It is worth reading and has encouraging news for us. 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.