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| Today's Commentary (Short Term Outlook) |
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Knee-jerk reaction, or
more? Stocks were finally given a reason to sell off on Friday after the SEC charged Goldman Sachs with fraud. When all was said and done, the Dow lost 126-points, which was actually well of the earlier lows. For the TSP funds, the C-fund lost 1.61%, the S-fund fell 1.34%, and the I-fund gave up 1.44%, while bonds rallied as the F-fund gained 0.33%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up. We asked the question on Friday, if the upside breakout of the rising wedge (which is not common) was going to be a real breakout, or just a fake out for the S&P 500. It may be too early to say, but it appears to be a fake out at this point as not only did the S&P pull back into the wedge, but it also fell below the lower support of the rising wedge making it a breakdown.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Granted, this sell off was news driven and could have been just a knee-jerk reaction, and that is why this week's action will be very important. The trouble with this event is that it may just be the start of a series of similar stories. There seems to be a desire in Washington to make Wall Street the enemy, and right or wrong, this may not be the best scenario for the stock market. As I write this, the overnight Asian markets are selling off hard as they react to the Goldman Sachs news for the first time. On a weekly chart, the S&P 500 is at the top of a rising wedge so it is possible that we are starting an intermediate-term correction, but it is too early to say.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The technical picture remains bullish and probably the best thing to happen to the bull market right now, is to see the S&P move down to about 1150, which would be near the 50-day EMA support on the daily chart, and the 200-week EMA on the weekly chart. It's interesting to note that while EMA's on the daily chart are nicely lined up with the 20-day being over the 50-day, and the 50-day over the 200-day, the weekly chart still has the 20-week EMA and the 50-week EMA trading below the 200-week EMA, which could be an issue for the long-term outlook. The NYSE overbought / oversold indicator is back to a neutral reading. The concern here is that the last time the indicator hit the zero to below zero level was back in January, just as that correction started.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Our TSP Talk Sentiment Survey came in at 61% bulls, 29% bears last week, for a 2.10 to 1 bulls to bears ratio. This gives the system its first sell signal since the buy signal it had in late January. So, today the sentiment system will be back in the G-fund, locking in its 2010 gain of 15.54% for now. The AAII survey that we keep an eye on is currently at a 1.60 to 1 bulls to bears ratio, which is neutral, but the Investor's Intelligence survey is at a hefty 2.70 to 1.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk We've seen higher ratios in late December, but this 2.70 is the highest since just before the January correction. If you are new here, or if you've forgotten, the more bullish the surveys, the more bearish it is for stocks going forward. This is true only at extreme readings and I would classify any bulls to bears ratio of 2.0 to 1 or higher, overly bullish. Short-term caution is warranted. Thanks for reading. We'' see you back here tomorrow. Tom Crowley |