Today's Comments (Short Term Outlook)

Patience Stocks closed down modestly yesterday as the Dow lost 39-points, and the three TSP stocks funds lost an insignificant 0.1% to 0.3%. The bond fund also dropped 0.3%. The S&P 500 has been up sharply since the low made during the first week of July, and with resistance firmly overhead, a pullback would seem likely.  Of course the more that people expect to see a pullback, the longer we may have to wait - but whatever does happen, the signs are there for the market to take a breather. I have my eye on the moving averages as possible targets for a pullback, but also the open gap between 906 and 910 is a good possibility.                  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Gaps on the S&P do happen but are not very common, so let's take a look at the chart of the Nasdaq, which shows gaps much more prevalently because it is a completely electronic index.  Gaps are caused by overnight order imbalances.  The NYSE wants to publish an open price, and the rule to calculate the index open for stocks not immediately trading at the opening, which happens in floor trading, is based on their last price or the prior close. So, there are fewer gaps in the S&P and Dow as compared to the Nasdaq whose prices open at the electronically produced current bid / ask at the open.  Since last September, there were several gap openings in the Nasdaq.  I've circled most of the more noticeable ones below.  All of them have been closed except for the most recent gap open on July 15.  That gap is between 1800 and 1824.  Whether it gets filled this week, or next year, we don't know, but history tells us - it will get filled.                  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Even the large gap down created last October was finally filled.  More often gaps get filled within days or weeks but that October 2008 gap took over 9-months to fill.  But it is filled, and I suspect the 1800 gap will be filled within weeks.  If you notice on the above chart, the 200-day EMA is currently 1785.  How sweet would it be to see the Nasdaq pull back to fill that gap at about the same time that the now rising 200-day EMA moves up to the 1800 area?  That would be a great support area, and probably the next best place to buy. The SentimenTrader.com Smart money / Dumb money indicator that we discuss often, hit a spread of -33.  That is, the smart money reading hit 38 while the dumb money hit 71, and the difference is -33.                               Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk It is not a "bet the farm" signal, but in the past the -25 area has been an area that has seen at least some short-term trouble for stocks.  We had two reading recently over -25 level and there were minor pullbacks, but nothing severe.  If we have started a new bull market, I'd expect the next pullback to be minor as well.  By minor I mean 10% or less.  If it does get worse than that, then we will be seeing a break below the 200-day EMA's on the major indices, and as I have been saying, that will be a signal to us to go back to playing defense.  My current approach will be to buy pullbacks unless there is a break of that EMA. The July jobs report will be reported tomorrow (Friday).  The estimates are for losses of about 328,000 jobs. That's all for today.  Thanks for reading!  See you back here tomorrow!