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Market Comments

June 27, 2011

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Today's Commentary

Holiday relief rally coming?

Last week was a rollercoaster for the stock market as we saw two reversal days in a row - going in opposite directions. The early weekly gains were given back after the FOMC meeting on Thursday. The Dow lost 115-points on Friday, and about 70-points for the week.

For the TSP, the C-fund was down 1.17% on Friday, the S-fund lost 0.84%, the I-fund fell 0.42%, and the F-fund (bonds) was up 0.05%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-Up.

The S&P 500 closed near its recent lows but so far has held above the important 200-day EMA and the longer-term support line (not shown, but in the 1250-1260 area.)   We are at a point where we could either see a major breakdown technically, or a rally off of support.


                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The recent 3-week consolidation between 1260 and 1295 is actually a good sign. When an index rises or falls, then consolidates, it can be because the pressure pushing the index is subsiding.   This chart shows how markets turn after periods of consolidation as rallies and declines run out of steam.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Sure, this market can rollover and breakdown, and I wouldn't be surprised if we saw a big breakdown to scare out the bulls, but I think we can expect some kind of rally this week leading into the holiday weekend. Today (Monday) is day "-5" and next Tuesday is "+1". It looks like Tuesday (-4) and Friday (-1) of this week are the historical strong days.

                                    Chart provided courtesy of www.sentimentrader.com

I noticed that the Rydex fund traders started adding money back into the stock funds. After falling for weeks, we saw a recent turnaround. This is a good sign in that these traders have been selling for weeks and now have cash, or they are starting to get rid of their bearish funds. This gives the market some ammunition for a rally.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Have you noticed that the price of oil has been dropping for the last several weeks? This could be a bad economic sign, but it also will put some cash back in consumers' pockets as the price of gas will fall in unison, which is obviously positive. There is a lag period between oil and gas prices so we can look forward to continued declines for a few more weeks.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

You can see that there is a large head and shoulders pattern on the chart and this is bearish for oil (good for consumers.) The H&S pattern has already broken, but there is still some support here near $90.

A longer-term look at the weekly oil chart shows that long-term support has already been broken and it looks like the low $80's is a good possibility in the coming weeks. The head and shoulders breakdown target would be closer to $65 or $70.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The falling prices could also be attributed to the recent strength in the dollar. The dollar broke above its descending resistance line a couple of weeks ago, but there is still some resistance at about $77.50 where the 50-day EMA will meet with the old support line that should now act as resistance.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The TSP Talk Sentiment Survey came in at 31% bulls, 59% bears, for a bulls to bears ratio of 0.53 to 1. That is a buy signal so the system's allocation remains 100% S-Fund for this week. The system is up 4.07% for 2011 through Friday's close.

The futures are looking negative as I write this Sunday night and after a 115-point loss in the Dow on Friday, a Monday morning gap down seems par for the course. But don't get too caught up in a gap down opening. Monday morning gaps tend to get filled rather quickly, and it could set up another reversal day. What that means for the market going forward, I don't know since we have had a few reversal days lately that meant little. I just think we have enough ducks lined up for another attempt at a relief rally.

Thanks for reading!   We'll see you back here tomorrow!

Click here to discuss today's Market Commentary Tom Crowley

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