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Market Comments

July 8, 2011

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Today's Commentary

Update: Big negative surprise in the June jobs report
18,000 jobs were created vs. 90,000 estimated. The unemployment rate moved to 9.2%. Negative revisions were made to previous month's reports.

07/08/11

Nearing highs

Another big day for stocks yesterday as the Dow gained another 93-points. Unlike Wednesday, the Dow was the weaker index as the broader market indices saw sharper gains.

For the TSP, the C-fund gained 1.05% yesterday, the S-fund was up 1.27%, the I-fund added 0.47%, and the F-fund (bonds) lost 0.23%.

Yesterday's strong ADP employment report was part of the catalyst as it prompted analysts to raise their estimates for today's June jobs report. One analyst rased their estimate from +100,000 jobs to + 175,000. We shall see.
The S&P 500 was able to break above the 3-day flat top formation yesterday; a pattern that normally tends to precede weakness. That is certainly a sign of strength, but going into today's important jobs report with expectations getting higher, a 'sell the news' reaction is very possible.


                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I don't see the report doing much damage to the market. A dip, yes. But with so many investors missing the recent rally, they will likely take advantage of any weakness and use it as a buying opportunity, which will likely keep any pullbacks shallow. That is unless we happen to get a very negative surprise in the report.

The Dow Transportation Index continues its hot streak and made another new all-time high. That's more good news for the S&P 500, which is a follower. It will be interesting to see if the old resistance near 5550, which was very strong going back 4-years, holds on any pullback.


                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The Nasdaq is getting close to testing new yearly highs, but after being up for 8 straight days, I would be surprised if it were able to make a new high without some kind of a pullback first. The open gap and the old June 1 peak could be decent support should that happen.


                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Taking a longer-term view of the Nasdaq in this monthly chart (each bar represents one month of activity), there is a large inverted head and shoulders pattern completed, and depending on how you draw the neckline, the upside targets would be in the 4000 - 4300 range over the next year or two, which would be a gain of 39% to 50% from where we closed yesterday.

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

If the neckline is the top narrow red line, then we have not seen the breakout yet. If the neckline turns out to be the lower thick red line, then it has already broken out, and has already come back to test the neckline with the recent June lows.

The TSP Talk Sentiment Survey came in at 52% bulls, 36% 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 next week. The system is up 11.72% for 2011 through Thursday's close.

Thanks for reading!   Have a great weekend!
Tom Crowley
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