Testing the neckline
It was another gap up Monday morning (Tuesday because of the holiday)
after the futures and overseas markets were up sharply over night on
Tuesday, but like we saw a couple of weeks ago, the strong start to the
week could not hold as the Dow lost an early 170+ point gain by the
afternoon. Then a late rally took the Dow and the other indices
back into positive territory by the close. The Dow closed up 57-points
on the day.
For the TSP, the
C-fund was up 0.54, the S-fund dropped 0.76%, and the I fund jumped
1.86%as overseas markets rallied on Monday. The F-fund
(bonds) gained 0.25%.
After being down 9 of the last 10 days, an oversold rally was certainly
due. The question is, will we get a playable bounce or did the
early rally yesterday hit its peak after it hit the 1040+ resistance
area?
The S&P 500 rallied right up to double resistance; the short-term
descending trendline, and the long-term head and shoulders neckline,
before quickly retreated. If the index can push above that level,
we may get that playable bounce, but the S&P closed 14-points off of the
highs and it seems the sellers will be stepping up at that level.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
We talked the other day about head and shoulder patterns, and one of the
more common ways that they play out is to retest the neckline some time
after it breaks below it, then head back down.
Yesterday's test was rather quick as they can sometimes take weeks
to test the neckline (see neckline on H&S "A" below being tested by the
head of H&S "B").
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
But you can also see above that some breakdowns from head and shoulder
patterns do not test the neckline at all, so yesterday's test could be
it. Again, if the S&P can somehow get above 1045 we could get a
nice playable rally, but until then, the technical picture is telling us
to use extreme caution.
The Dow Transportation Index, one of the market leaders, did not make it
back into positive territory yesterday, which could be a concern, but it
is nearing some possible support from the new descending trading
channel. Not great news, but it is something.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
The NYSE overbought/oversold indicator saw a little relief yesterday,
but not much. During a bear market - and that will become official
as soon as the 50-day EMA (1198) moves below the 200-day EMA (1096) -
the overbought level is closer to +500 and even -0- is a reason to be
very cautious. A couple of days of sideways action could be enough
to pull it back up to -0-.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
It is inevitable that we could see a rally here soon, but yesterday
showed us how short they can be (hours?) And we also know that
yesterday's high of 1040-1045 might be the best we may see but if that
neckline level is tested again, it would be a gain of about 1.5% from
where we are right now.
Thanks for reading. We'll see you back here tomorrow!
Tom Crowley
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