Today's Comments (Short Term Outlook)                            Printer  friendly

Test of the H&S head, or something more? Stocks continued their surge higher yesterday as the Intel earnings report did produce the rally that the futures were indicating late Wednesday.  The TSP stock funds picked up an impressive 3% to 3.6%, while the bond fund fell another 0.5%. As I mentioned yesterday, sometimes these Intel generated rallies fade rather quickly.  Sometimes before the trading day is over, but not this time. Last week we talked about possibility of seeing an oversold / overly bearish sentiment rally in the market, one that would be temporary and test the neckline of the head and shoulders pattern (H&S), or the middle of the head. The S&P 500 is now at the top of the range that we were looking for, for this "bounce".  Again, the three possible scenarios we were looking for were a move to the neckline ("B"), a move up to the middle of the head ("C"), or a new high above the head (least likely).   Yesterday 3% rally took the S&P up to 932.68, and that would be area "C" on our chart.  It also happens to just below the 200-day EMA.  This area should act as resistance and, although the market seems to like to surprise the most people at any given time, I will be surprised if we see much more upside movement from here.                      Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The next action I suspect we'll see this week, or some time next week, is a move down toward "E", with an initial downside target for the S&P 500's H&S pattern of 800-810.  I wanted to revisit the NYSE overbought/oversold indicator today, not only showing that the indicator is overbought, but that the pattern we are seeing does have a tendency to end with a sell-off. Last week we were looking for a bounce in stocks when this indicator moved down toward -500.  It has since moved to +386.  When there is an overbought spike to the upside above a descending trend channel, many times it marks a short-term peak.                    Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The overbought/oversold indicators have been pretty reliable lately, as have the sentiment surveys (see today's on the home page).  But right now the head and shoulders pattern is telling the main story and we will just want to watch this for clues to the next move.   I am being cautious going forward, but if we do see a new high (above the head of the H&S) then I may have to rethink things.   That's all for today.  Thanks for reading!  We'll see you back here tomorrow.