Moving average mania
Stocks opened very strongly yesterday, and despite closing up modestly,
they lost their steam after the FOMC policy statement was released at
2:15 PM ET. The Dow, which had been up over 100-points, closed
down 23, but all of the TSP stock funds were up. The F-fund
slipped 0.12%.
The S&P 500 is really telling an interesting, and somewhat confusing,
tale. The uptrend off of the March lows remains intact. We
are watching the May low near 880. A break below that would break
the uptrend. With yesterday's rally, the index moved back above
the 200-day simple moving average (not shown), and the 50-day EMA.
On the negative side, that rising wedge was broken to the downside, the
PMO is still below its 10-day MA, and the MACD is looking very ominous,
but that divergence has gone on for quite some time now.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
With the 50-day EMA now
flirting with the 200-day SMA, I wanted to revisit the 2000-2002 bear market
chart. In the spring of 2002, the 50-day EMA touched the 200-day SMA,
but instead of crossing and staying above, it turned out to be the end of an
overbought bear market rally. So, while the moving averages are
showing some positive flashes, it is a "close but no cigar" signal right
now.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
In March of 2003, the 50-day EMA crossed above the 200-day SMA convincingly,
and stayed there. That's what I would want to see. Buying any
pullback after a strong crossover would be the best time to get in, but you
could be a little late at that point. It could be rewarding if
correct, but anticipating a crossover definitely comes with more risk .
Bond yields have pulled back over the last couple of weeks, which helped the
F-fund as bond prices go up when bond yields move down. The yield of
the 10-year T-note had broken to the upside of a rising wedge, which is not
usually what happens to a rising wedge. Since the strong breakout, the
yield has pulled back to the wedge, which may be acting as support now.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
The PMO of the yield is still moving
down, which would be bullish for bonds and the F-fund, but if the above
support continues to hold, the recent modest rally in the F-fund may run out
of steam.
All this talk about moving average support, resistance, and crossovers may
be overkill, but I believe this is a very important time for the stock
market. We are on the verge of either the start of a new bull market,
or the resumption of the bear market, and I think the answer will eventually
be found in those moving averages.
Attention Trader Fred subscribers: Please be sure to read
today's (Thursday's) important commentary from Fred.
That's all for today. Thanks for
reading! See you tomorrow!
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