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| Today's Commentary (Short Term Outlook) |
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The Golden Cross - sort of Stocks sold off yesterday as the Dow dropped 268-points and again, more technical damage has been done to the charts. Volume was surprisingly robust, as investors took this one a little more seriously. For the TSP, the C-fund lost 3.10%, the S-fund dropped 3.81%, and the I fund fell 3.30%. The F-fund (bonds) gained 0.14%. There's no doubt that yesterday was down-right ugly , but what else did the action tell us? The S&P 500 broke below the triple bottom lows going back to February, and while it was able to crawl its way back over the 1040 level we have been watching, the 1041 close was the lowest since late October. The S&P is trading below the 20, 50, and 200-day EMA's (exponential moving averages). When the S&P starts trading near the 200-day EMA, I like to take a look at the 200-day SMA (simple moving average) since many other traders do. While the 50-day EMA has not quite moved below the 200-day EMA, it has now crossed below the 200-day SMA, and traders are talking about it - and obviously in a very bearish manner. It is called the "Golden Cross" or something of the like.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk This would be considered a longer-term sell signal, but we could also see a short-term relief rally as the indices become more oversold. I said "could" not "will". Markets like this can also see waterfall-like declines when intermediate to long-term support breaks. Back in 2007 we saw the 50-day EMA cross below the 200-day SMA in late November, but the 50-day EMA did not cross below the 200-day EMA until January 2008. In the long run it meant the same thing - stocks were in trouble. But in the short term (about 2-weeks) the S&P 500 saw a relief rally and the market was very volatile during December 2007, the month between the two "Golden Crosses."  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The higher volume surprised me yesterday as I thought the holiday trading and the Friday jobs report would keep things quiet at least until then. Now I don't know what to expect. With volume and volatility spiking, so anything could happen from a crash to a powerful snapback oversold rally. The consensus estimates for Friday's June jobs report is for a loss of 100,000 jobs and an unemployment rate of 9.8%. If you remember, the May report saw a gain of 431,000 jobs and a 9.7% unemployment rate, but the concern was that most of those jobs were government census jobs. The market has probably priced in the 100,000 / 9.7%, so we'll have to see if there are any surprises. Thanks for reading. We'll see you back here tomorrow! Tom Crowley |