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| Today's Commentary (Short Term Outlook) |
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Signs of life, but
resistance looms Stocks rallied strongly yesterday pushing most of the indices back up toward resistance so this rebound will be tested right away. The Dow gained 273-points retaking the 10,000 level. For the TSP, the C-fund was up 2.95%, the S-fund gained 3.33%, and the I fund jumped 4.06%, while the F-fund gave up 0.50%. The S&P 500 is attempting to rally from a double bottom off of that February low support line. The 3% rally was on fairly light volume, which is somewhat troubling, but the real concern is the imminent overhead resistance. The index closed at 1187 and the 200-day EMA is near 1099, the 20-day EMA is at 1093, and the descending trend line is between 1090 and 1100. Breaking those resistance levels will certainly get the attention of many investors who may otherwise be waiting on the sidelines.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The PMO and MACD indicators are looking pretty good. The PMO is moving up, but it is not quite giving a buy signal yet as the daily reading is still below the 10-day EMA. The MACD had been giving us a strong positive divergence reading for weeks now. While the S&P 500 has either moved down or sideways, the MACD is clearly moving higher, which is generally a good sign for the market. We saw a similar divergence in January / February, as the correction came to an end and the bull market rally continued. The AAII Investor Sentiment Survey, taken on Wednesday, came in at 34% bulls, 42% bears for a bulls to bears ratio of 0.79 to 1. That's the 3rd week in a row below the 1.0 to 1 level. The last time that happened was also at the February bottom.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The TSP Talk Sentiment Survey came in at 49% bulls, 40% bears for a 1.23 to 1 bulls to bears ratio. It is not too much of a surprise to see a more bullish result since it was taken yesterday while the Dow was up over 200-points, but the 1.23 ratio is still low enough to remain on a buy signal since we are still using the bull market rules. We won't switch to bear market rules until the 50-day EMA moves below the 200-day EMA. We are seeing several indicators at extreme levels such as this Rydex Cash Flow Ratio, which is basically telling us that investors have been getting very bearish, the most since 2007, and at extreme readings this Ratio is a contrarian indicator meaning it could be short-term bullish for stocks.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk But as good as yesterday was, we have to remember that some of the biggest one-day rallies come during bear markets and until the S&P 500 can climb back above the 200-day EMA and the descending resistance, you have to worry that this could end bearishly. As I have been saying, those who want to roll the dice can be rewarded nicely in situations like this, but caution is still warranted and most people may want to make capital preservation their main priority until we start seeing more confirmation. That would be a breakout above those resistance levels, preferably on higher volume, and having it last more than 2 or 3 days. Until then, I will look at this as an oversold bounce. Of course some of these oversold bounces do last long enough to take advantage of them. Thanks for reading. Have a great weekend! Tom Crowley |