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| Today's Commentary |
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A day of rest Stocks were mixed on Tuesday as they took a needed break from the recent powerful week-long rally. The Dow closed up a dozen points, but the S&P 500, Nasdaq, Transports, and small caps all closed lower. For the TSP, the C-fund slipped 0.10% on Tuesday, the S-fund lost 0.69%, and the I-fund dropped 0.16%. The F-fund (bonds) was down 0.09%. Early gains took the S&P 500 further above the 200-day SMA, but the weak close pushed it slightly beneath it again. The 50-day EMA is now moving up and is close to overtaking the 200-day EMA again, which would whipsaw the market back into an "official" bull market. It had moved to bear market territory just a couple of weeks ago. I have been noticing something interest on the chart of the S&P 500 lately. I posted two charts of the S&P below to show it. Both charts show head and shoulders (H&S) patterns - the first one is a bullish inverse H&S, and the other is a bearish H&S. Both charts have a clear left shoulder (LS), right shoulder (RS), head, and neckline. But both also have a false break (circled in red) that does not exactly go with the H&S formation. For the each H&S, the false break is the head of the opposite H&S formation.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk In the above bullish H&S formation, the breakout above the neckline has already occurred. The upside target is in the area of 1175, but a pullback to the neckline is possible first. If it's tough to see, this is what I am trying to show above...  But, in the bearish H&S, we are seeing what would be considered the "test of the head" and the S&P would start to decline now if this was the formation take the lead.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk And here is the bearish look I'm showing above...  So, we have two possible outcomes. How appropriate for market that has been very difficult to analyze? Back in early to mid-June I started to get more bullish as the put/call ratio was giving us the sign I like to see - the dumb money was getting very bearish while the smart money became very bullish.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk While the smart money was getting very bullish again in early July, the dumb money readings were not giving us much to go on - particularly the CBOE put/call ratio. Now the smart money is getting more bearish again, something they will do as stocks rise, and the dumb money is getting more bullish although again not to any extreme. I believe this is a negative going forward, but nothing too telling. As you can probably tell, and as I have been saying, I am grasping at straws for some clues. There's nothing glaring at me to make me bullish or bearish at this point. We have good arguments on both sides, or no argument to go against one way or the other. This could just be a light volume summer doldrums move in stocks that just needs time to manifest into something more tangible. August and September are weak months historically, and perhaps we will get more clues then. A continued rally in August would be a sure sign of strength, while a decline would make sense based on historical data. This is old data but it is covering a 56-year period.  Chart provided courtesy of www.sentimentrader.com Thanks for reading! We'll see you back here tomorrow. Tom Crowley |