Runaway rally
After testing the 200-day EMA and investor sentiment hitting extremely
bearish conditions, the stock market had a huge week last week, keeping the
long-term bullish trend intact, and the Dow capped the week by gaining
168-points on Friday.
For the TSP, the C-fund jumped another 1.45% on Friday, the S-fund
gained 1.58%, the I-fund
was up 1.28%, and the F-fund (bonds) fell 0.11%.
For more on the weekly and monthly returns, please see our
TSP Weekly Wrap-Up.
The descending
trends have been broken, and with a just few obstacles in the way, most of the major indices are now
reaching toward the recent highs.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
The inverted head and shoulders pattern / test of the head that worked in
2010, seems to be working again. The real test will be to see if new
highs can be made.
On the weekly chart we have the opposite problem.
There is some resistance at the 1340 area that could turn into the top of a
right shoulder in a bearish head and shoulders pattern, so that is a
potential bearish outcome that we'll want to watch for.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
After the Dow has rallied over 760-points off of the June 16 low, it is not a surprise
that the market is overbought. The NYSE overbought/oversold indicator
is flirting with the +1000 level. This is not a deal breaker. As
a matter a fact, a +1000 reading usually only gets hit in a bull market.
A bear market will usually top out closer to +500.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
But it is a sign that we may need to digest the recent gains. The
question is, how underinvested are some investors, and how patient will they
be on the dips? If a lot of people miss a rally and intend on buying
the next dip, the dips become very shallow and can be frustrating for those
watching the market pull away without them.
The overbought market will meet a double top in the market leader Dow
Transportation Index. The Transports actually made a new all-time
closing high on Friday. Pretty amazing considering how much damage has
been done to the indices in the last 2-month.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
You might expect at least a little pullback when testing a new high but the
Transports are no stranger to this 5550 level. This is not a double
top, but rather a 4th test of this level. I think it may be about ready to
blow...
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
The 2 trading days after
the 4th of July (Tuesday and Wednesday) have a history of being just
slightly positive - but nothing much better than a random day.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
The
TSP Talk Sentiment Survey
came in at 50% bulls, 37% bears,
for a bulls to bears ratio of 1.35 to 1. That is a neutral reading so the
system's allocation remains 100% S-Fund
for this week. The
system is up 9.70% for 2011 through Friday's close.
So, I see possible scenario that his rally turns into something less than
positive, but with the market leader Dow Transports looking to make new
highs, I am optimistic that the S&P can follow along. That's a
short-term view. What happens with the economy, the debt ceiling,
etc., in the future, I don't know. But hopefully the technical
analysis in the charts will prepare us for whatever happens.
Thanks for reading! We'll see you back here tomorrow. Tom Crowley
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