Fake out or coming breakout?
Stocks soared on Monday following some takeover
/ merger announcements. The Dow gained 124-points and the TSP stock funds
were up 0.9% to 2.1%. The F-fund (bonds) were also up.
We talked yesterday about giving the
benefit of the doubt to a bullish outcome to this
pullback, since we are officially in a bull market, but of course I was not
allocated properly today.
Like every rally in this bull market, this move higher does come with
some caution flags that keep us from being comfortably fully invested at
all times. Some indicators are just flatly telling us to be
careful.
Yesterday's rally was no exception as there were plenty of reasons to be
skeptical. The fact that bonds were up also is suspicious, but it
could have been fluky holiday trading as yesterday was Yom Kippur, and
trading volume was very low in stocks - surprisingly, the lowest of the
year . When the market moves strongly in one direction or the
other, but volume is not there, it could be a sign of a "fake move".
We'll find out soon enough.
And, if you are familiar with the
EbbChart system, it
had a pattern for Monday / Tuesday that has a strong tendency to see a
flip flop. That is, if Monday was up, expect a down day on
Tuesday. If Monday was down, expect an up day on Tuesday. I
was really hoping the market would be down on Monday morning so I could
use one of my September interfund transfers to buy into the market for
Tuesday, but c'est la vie.
The S&P 500 is in a bull market and the 20-day EMA has held so far, but
seeing a little bounce here is not unusual, even if it fails in the
coming days. The overhead resistance remains a factor and the S&P
is closer to it than support - meaning there is a lot of room on the
downside still, even if we do stay within the trading channel.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
If I say it, it is almost a guarantee that
it won't happen this way, but if we can see the S&P 500 pull back enough
in the coming days to fill the open gap at 1016, and the 50-day EMA
moves up toward 1016 (currently 1013 and rising), and the rising trading
channel support line also hits that area, it will certainly be a great
looking spot to be a buyer. And it will be a very nice risk reward
play because if the S&P moves below those levels, it's an easy sell
signal. So, you'd have a great buying opportunity or else, you'd
be out quickly.
The NYSE is back above the neutral level, and that pesky little rising trend
of the oversold lows is still holding. I say "pesky" because it would
be a lot easier to buy an oversold level, than a neutral level.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
The dollar is back above that support area, but is still below the
descending trendline, and closed below the 20-day EMA again, which has
giving the dollar a lot of trouble lately.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
But the dollar has come off of the lows during the last week, and that is
hurting many of the commodity type indices including oil and gold.
Oil recently broke below its wedge-like trading channel, but it is trying to
hold above the 200-day EMA. The 4 consecutive closes below that
support line is about 1-day away from confirming the breakdown. I like
to see 3 to 5 days below support before I get on board a new trend.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
The dollar's action is playing a key
role in this, but it usually all works out together telling a similar story.
Gold is seeing a pull back from its recent breakout over 1000, and I would
expect the rally to resume if the dollar cannot get above its resistance
levels.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
If the dollar does break above resistance and starts to rally, I'd expect
gold to continue to pull back.
Semiconductors are considered a commodity these days, and they have
benefited from the weak dollar as well, but there is also the technology
play here, and with stocks in a strong bull market and technology leading
the way, semiconductors are benefiting big time.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
The dollar's action is playing a key
role in this, but it usually all works out together telling a similar story.
Lower oil prices sound good to us as it could put more money into our
pockets if gas prices follow, thus a possible economic stimulus, however, if
this price movement is related to a lower demand for oil, that may not be a
good indication for the economy. We'd like to think the drop would be
related to an increase in supply, or strength in the dollar, rather than a
drop in demand.
Reminder: October has been a pretty strong month historically, despite
its reputation for some crashes. That does not mean it will be up this
year. There's just a positive bias to consider.
Chart provided courtesy of www.sentimentrader.com
This is a reminder that Scribbler's TSP & Economic report has changed from a
twice weekly report, to a daily report. Because of this the price of
the subscriptions will be going up beginning Oct 1st. This will NOT
affect current subscribers. Both monthly and annual subscribers
will lock in the old prices when renewed, as long as their subscriptions
remain active. More info.
I have some very sad news to report. Our very good friend and TSP Talk's
lead moderator on our message board, Spaf
(George McCown), passed away on September 6th after a long battle with
cancer. He was such a great guy and will be greatly missed by those who knew
him. Rest in peace, my friend.
That's all for today.
Thanks for reading! We'll
see you back here tomorrow.
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