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Today's Commentary (Short Term Outlook)
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Crash! Did you see the 630-point rally in the Dow yesterday? It was great! Unfortunately it came after a 980-point crash. That was one of the strangest things I have ever seen in the market, and while we could see a rebound in the short-term - everything just changed. For the TSP, the F-fund was up 0.46% as investors jumped into bonds while the TSP stock funds lost between 3.2% and 3.6% on the day. The S&P 500 and all of the major stock indices dropped like a rock, breaking support like a hot knife through butter. They say the 900+ point sell-off, that took about 15-minues, may have been triggered by an error in a large order of Procter & Gamble (PG) as the stock hit $39, but just a few minutes later it was back over $60. I don't care what really happened, I just want to take a look at the charts and see what we have - although I am hearing that it is possible that some of the "mistake" trades will be corrected, which could propel stocks higher. That's a lot of uncertainty that should keep volatility high. You can see that the 50-day and the 200-day EMAs were taken out during the crash, but the rebound not only took the S&P back above the 200-day EMA, but it also closed back in the longer-term ascending trading channel, which is something, but too much damage has been done to be bullish about it.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk I would expect some kind of "dead cat bounce" today, but we have a jobs report this morning so who knows how this jittery market will respond? Remember, Joe and Jane Sixpack were watching the evening news last night hearing about the chaos on Wall Street for the first time. They may come out selling this morning, but I still believe we will see a very short-term rally at some point. These type of big sell-offs do tend to see short rebounds, but typically the best thing to do is to is to sell the rally. Here's an example of a few 2007 sell-offs... I have put a red arrow next to some the larger sell-offs of 2007, and as you can see, while it is tempting to buy sell-offs, they usually produce lower lows in the not too distant future.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Except for the big reversal day in August of '07 (circled above), selling within a day or so usually saved you money. But even the August low was later tested in November, and of course in 2008 we saw much lower numbers on the S&P 500. The NYSE overbought / oversold indicator is pushing near the extreme oversold reading of negative 1000. During the bull market, this was a good buying opportunity. It may be this time as well, but volatility is back, and this market is not going to go back into a quiet rally mode any time soon. It is going to stay wild for a while.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Speaking of volatility, the VIX jumped to over 40 at one point yesterday, basically indicating the selling was reaching a panic point. It closed down near 33, but volatility is back, and we may have to revisit 40 at some time in the coming weeks.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The TSP Talk Sentiment Survey has made its fourth signal change in as many weeks. The 36% bulls, 54% bears and 0.67 to 1 ratio, is bearish enough to put the system back on a buy signal for next week. As I mentioned, this morning we get the April jobs report. Consensus estimates are for a gain of 187,000 jobs and an unemployment rate of 9.7%. Anything better could really spark a rebound rally, but again it could be short-lived. If it is a weaker than expected report, who know how already jittery investors will react? Greece is still the concern, and although we have been talking about Greece for many weeks, I knew it wasn't going away any time soon. And Greece could be just the beginning of this debt mess so expect this to be an exciting summer for the market. Thanks for reading. Have a great weekend! Tom Crowley |