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| Today's Commentary |
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Overbought Stocks moved higher again on Monday keeping the recent rally going strongly. The Dow picked up another 101-points, but there are some signs of fatigue showing in the short-term For the TSP, the C-fund gained 1.12% on Monday, the S-fund jumped another 1.92%, and the I-fund picked up 0.82%. The F-fund (bonds) was up 0.08%. While I am still not convinced that this market is going to rally to new highs as if nothing was wrong, the S&P 500 is cutting through resistance rather easily. Some of it could be because of what I talked about yesterday; which was that automated stops and buy signals would be kicked in as resistance is broken, but volume was light and the index is now bumping against the 200-day SMS (simple moving average.)  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The technical picture is certainly improving but it has a way to go. The PMO indicator still looks good after giving us a buy signal a few weeks ago, but the MACD is showing a negative divergence. As I have said before, the market seems to always try to get us to lean the wrong way, and I am still a little frustrated that I fell for the fake out breakdown from resistance last Friday (July 16), and with just 2 transfers per month, the TSP is probably enjoying seeing some of us market timers twiddling our thumbs on the sidelines while the market goes up. With 4 trading days left in July, let's just hope that those of us who are stuck on the sidelines won't be completely left behind. With the market getting very overbought, we should see at least a pause at some point this week. The +1007.63 reading in the NYSE overbought/oversold indicator is the 3rd highest (most overbought) reading in the last few years. During the bear market in 2008 the +1000 reading marked a top that led to a sharp decline. In September of 2009 it marked just a short-term top in the middle of a huge rally.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk During bull markets, overbought readings are nothing to worry about. It could just lead to a pause or a slowdown in the upward movement. In a bear market it can lead to longer term market peaks. Since we are still battling the bull/bear market scenario, I don't know how this will turn out this time. We have clues endorsing both sides of the bull / bear case. If forced to make a call I would put caution first as the extreme overbought reading should at least put the breaks on the rally for a few days. Thank you for reading! We'll see you back here tomorrow. Tom Crowley |