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| Today's Commentary (Short Term Outlook) |
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Fake out News of China ending its 2-year peg to the U.S. dollar sent stock futures soaring during Sunday's overnight trading, and that carried into Monday morning's open. But by the close, stocks lost those gains and then some. The Dow was up over 140-points during the early trading hours, and was down as much as 55-points in the late afternoon, before setting at a loss of 8-points.  For the TSP, the C-fund dropped 0.38%, the S-fund fell 0.81%, and the I fund held onto early gains at +0.30% while the F-fund added 0.05%. As I mentioned yesterday, the charts and indicators are the key, not the news. Yesterday the S&P 500 took a turn for the worse at it broke above the 50-day EMA early, but could not hold it into the close. It also created an "outside day", which is caused by a higher high, and a lower low compared to the prior day's range, and it closed below Friday's low. This is generally a bearish sign for the S&P, and it would have to make some quick work of damage control to avoid yesterday's high from being another peak.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk This chart below of the S&P 500 from 2006 shows how important the 50-day EMA can be. When the S&P trades above the 50-day EMA, it acts as strong support. When it trades below it, it acts as strong resistance.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The red arrows show us where we had false breaks of the 50-day EMA, and unfortunately there are several instances, which makes it very tough for us to know if an initial break is going to be valid. Even if the 50-day EMA had held yesterday, we would have to wait a few days to see it the break is legitimate. As of now, it is not. And worse, we have the negative outside day to deal with. My defensive antennae are on alert. If there is any good news in this as far as not being caught on the wrong side, it is that the 200-day EMA is at 1100 and the S&P 500 closed yesterday at 1113. Should the S&P 500 close below the 200-day EMA, we can probably safely get out of the way (sell), and it will only be a 1% or 2% loss from where it is right now. A little damage control. So, if the rally is going to resume, then we have an initial target of 1150 (head & shoulders right shoulder), and then 1220 (April's high). If the S&P is going to rollover, then we might be able to get out just below 1100. That's a pretty good risk reward play. But yesterday's action sure got my attention and I don't know how much patience I am going to have if things don't improve very quickly. Today and Wednesday there is an FOMC meeting and tomorrow at 2:15 PM ET they will announce any policy changes. Thanks for reading. We'll see you tomorrow. Tom Crowley |