Today's Comments (Short Term Outlook)                             Printer friendly

Dip Stocks pulled back some yesterday on a combination of events, all or none of which may have had an affect.  Oil shot up to over $120 a barrel at one point yesterday.  Microsoft withdrew its offer to purchase Yahoo!  And Countrywide Financial dropped after doubts over the Bank of America buyout. Basically, stocks just took a break after the recent run up, as the S&P 500 stumbles near resistance, and the 200-day moving average.  My theory is that we are not out of the water yet based on the technical chart, but that a new bull market could start if the S&P 500 can overcome the overhead obstacles.  Market mover Cisco reports after the bell today, but with earnings season winding down soon, we could see stocks pause based solely on a lack of any new catalyst.  Of course there can always be surprises.  I had some problems with my image editor after a recent computer crash so I am going to cut it short today to try to take care of that.  The images I posted yesterday (below) are still telling the story, however. Thanks for reading and we'll see you tomorrow!   05/05/08 Jobs report rally -Transports rallying Stocks gapped open higher on Friday morning after a better-than-expected jobs report was announced.  But as the day wore on, the gains drifted away before closing modestly higher. The jobs report came in with a loss of 20K jobs in April, much better than the estimated 75K loss.  The unemployment rate also dropped to 5.0% in April, from 5.1% in March.  It's a good sign for the economy going forward and the market rallied on the surprise, but a 20K loss is still a loss and we are not out of the woods just yet.         The market has rallied strongly since the lows in March as the indices are forward looking indicators and must have seen this improvement coming.  I am hearing a lot of talk about the Dow Jones Transportation index, which is also a forward looking economic indicator, and the rest of the market has a tendency to follow in its footsteps.  You would think with the price of oil getting deeper into triple digits, the transportation stocks would be suffering, but instead they are shining as they are a stone's throw away from all-time highs.  When goods (or people) are being transported it means money is being spent and that could be telling us that the economy is doing just fine. There is a very distinct reverse head and shoulders pattern breakout on the transports chart,  and you will notice that the transports have decisively broken above the 200-day moving average. Both are quite bullish signs.                     Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk It's a stretch, but you can make a case for a smaller reverse head and shoulders pattern in the S&P 500.  But it is obvious that the S&P 500 is lagging the strength of the transports.  Conventional wisdom says the other major indices should follow the transports , but is that always true?                    Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk Looking back at the bear market / recessionary period of 2000-2002, and you can see several instances of the Dow Transports producing big rallies in 2000, 2001, and 2002, breaking above  and below the 200-day moving average, but it wasn't until 2003 that we saw the final bottom.                     Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk Compare that to the S&P 500 during the same period where stocks behaved more "orderly", not breaking decisively above the 200-day moving average until the end of the bear market in early 2003.                     Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk So, my take is, the transports may be doing well and it is a good sign, but it is no guarantee that the stock market is ready to start a new bull market.  It could be, but we have nothing concrete to hang our hat on.  As a matter of fact, the odds favor a move back down since we are technically still in a bear market and the indices are overbought.  There has actually been a little hype that we could have seen the lows on the dollar.  That may be true, but that doesn't necessarily mean it will shoot straight up.  There is an economic reason the dollar was so weak and we want to see something to tell us otherwise.  For now, a rally up to the 200-day moving average would be a good start, but then it would get tough.                       Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk And here is the big problem.  Oil continues to climb in an orderly fashion.  You can see below that each breakout has been followed by a pullback to the breakout level, before making another move higher.  Last week's pullback brought it right to the  March high, which was April's breakout level.  This is a bullish chart with no signs of slowing down.                       Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk Now, how the transportation stocks can be doing so well with $116 oil is a mystery to me.  It seems to be affecting the price of almost everything.  You don't always have to understand why something is going up to get onboard, but I have to admit I don't get this one and perhaps the economy is doing much better than meets the eye.  The problem with being too bearish is that the market could very well climb the preverbal wall of worry for a long time before we understand it.  That is why I am watching the technical picture closely.  If the S&P 500 can break above the 200-day moving average and stay there, I  will have to look to buy the dips.  I am being safe rather than sorry right now, but that could change if the technical picture tells me so, and it is close.  For now I'm looking for a pullback. That's all for today.  Thanks for reading.  See you tomorrow!   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. 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