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| Today's Commentary (Short Term Outlook) |
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Resistance and possible
reversal Stocks opened strongly to the up side on Monday, following through on Friday's big gains, but by the end of the day the indices closed basically flat, and it may turn out that we witnessed an exhaustion gap. The C and S funds were down slightly. The I-fund survived with a modest gain, but maybe only because the sell-off came later in the day. Bonds were up 0.30%. It is too early to say, and we really should give the benefit of the doubt to the relentless bull market, but yesterday's action did show reversal qualities. It wouldn't surprise many of us if the upside action simply resumed today, but when you get a gap opening after a big day like Friday, while the indices are getting stretched to the upside and pushing into resistance, and then that upside action reverses and gives back all of the gains by the close, well you have to be on the lookout for a possible short-term top forming. Of course we have been saying that for months, so what do I know?  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk I am not going to be too fussy. I'll take a pullback to the lower end of the rising wedge. If I can buy at that level, I will worry about a break down on the downside at that point, but with all of the moving averages (EMA's) doing what they are supposed to be doing, we have to give the nod to the bulls and be buyers of dips. If things do start breaking down technically at that point, then we can worry about selling. Until then, just give us a chance to buy. Unfortunately there are so many people in this same predicament (looking to put cash to work) that the dips have been very shallow and those in cash have not been given decent opportunities. I guess we did have a small opportunity in early July, but at that time the technical indicators were not looking as good, as the 50-day EMA was still below the 200-day EMA, the two-month long head & shoulders pattern had just broken below the neckline, and we had a lower low on the S&P 500. But we were bamboozled and the market took off without many of us, as it ignored our bad technical setup. I will keep my word that this week's commentary will be short and boring unless something interesting happens. Monday's reversal was of some interest but we'll need some downside follow through to get my attention - so I'll make just one more point and it is regarding sentiment... Since I am part of the "dumb money", I am very aware of the contrarian implications of my own desire to buy weakness, understanding that it could mean it would be the exact wrong time to buy the dip, and that the next pullback could be severe. That is why I would have a exit strategy in place if I do buy. Like the rest of the dumb money, I am usually wrong at the exact wrong time. My only saving grace is that I am aware of this possibility, and I also have the use of the premium systems to let help me make a less emotional decision. That's all for today. Thanks for reading! We'll see you tomorrow. |