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The next catalyst

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by
tsptalk
, 11-08-2011 at 08:36 PM (3170 Views)

11/09/11

Yesterday stocks put in an almost duplicate day to Monday's action as the indices opened higher, then fell into the early afternoon, and rallied into the close. The Dow gained 101-points on the day and the S&P moved above some key levels.


For the TSP, the C-fund was up 1.24% yesterday, the S-fund gained 1.09%, the I-fund added 1.05%, and the F-fund (bonds) lost 0.29%.

The S&P 500 moved above the flat top, which I thought was an important level since flat tops tend to precede pullbacks. It also moved above a longer-term potential resistance area; the lower blue line below, which was the neckline of the old head and shoulders pattern that broke down in August.

The index also remained within the sharply ascending trading channel (red), which may be too steep to maintain for very long, but it now faces another possible resistance level (descending purple trend line).


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

 So far so good since all I wanted was for the S&P to remain above the 200 & 50-day EMA's while the debt issues play out around the world.

As we talked about the other day, the market likes to sink its teeth into something and follow it. For a while it was the dollar, or gold, or the price of oil, and most recently Greece. Now the attention may turn to Italy and its 10 year bond yield.
Yesterday the Italian bond yields pushed near 7 percent, a level where Greece, Ireland and Portugal all sought bailouts, so the market is viewing this as an important psychologically area.

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

 If that yield hits 7% we could see more nervousness in the market and I might expect volatility to pick up again. But then again, stocks rallied yesterday despite this, so it may be that this is already priced in.

Volatility had eased off of some recent highs and if the VIX can get below 25, we could get a more calm, sustained rally. But we will have to see what happens if we start seeing that 7% yield being hit.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

If we managed our accounts based on the news headlines we'd probably be pulling our hair out right now. The market never ceases to amaze me how it can do the exact opposite of what you might expect. I have my theories on that (such as, the market knows before the rest of us), but that's why I use the charts and indicators to help make my decisions. And when the charts and indicators are not in agreement, and we are seeing some of that now, I break the tie by using the charts.

Today is Wednesday, and Wednesdays have had a tendency to be wild this year and you never know what to expect. I will continue to look to the charts for the clues, and the recent strength in the charts leads me to believe the market is expecting the news to be good, but things could change pretty quickly.

Thanks for reading! We'll see you back here tomorrow.

Tom Crowley


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Comments

  1. CallMeIshmael's Avatar
    "The index also remained within the sharply ascending trading channel (red), which may be too steep to maintain for very long." Agreed. I think we should also look at what may be a new trading channel, one begun Oct. 10, whose support line more or less parallels the 50-day MA. We now have 20 days of more moderate, gradual increases (except the irrational exuberance of Oct. 27-28, which was quickly tamed) and less volatility, a kind of consolidation as the market tests various resistance levels inch by inch. Today's close is in the top half of this new channel, and we might expect the price to swing down a bit again, and if the new channel is being followed that won't be bad, as long as the price stays above the 50-day MA. But if we see the present movement as a continuation of the steep rise begun Oct. 4, we should anticipate a much greater rise over the near future, since today's close is still in the lower half of that channel.


    I see Oct. 4-10 as the last of the many 4-8% swings, up and down, that followed the early August fall. On Oct. 10 the market stayed above the 50-day MA. It did not cycle back down again as it had done 4-5 times before. This marks something new. And it has remained above the 50-day MA since then, climbing with it. This isn't the Big Rally, but a steady consolidation. That consolidation has contained the swings in the Europe-news these past 4 weeks.
  2. jkenjohnson's Avatar
    If the market closes up today, I will be utterly flabbergasted (hope I spelled that correctly).
  3. xarmy87's Avatar
    Well, that yeild jump didn't take long, did it Ishmael ? And are you so sure that we are done with those 4-8% swing's ? as of 11:30a.m. today the 9th, i'm not so sure. And Tom, i hope you are right about the 50 and 200 day ema's holding and signaling a decent little, even if only short, rally. You are definitely right that the market seem's to do the freakin' exact opposite of what you would expect. Does anyone but me think all of the billionaire's have a secret "mission control" room from which they secretly run the entire world market(s) ? Hahaha! OR....????
  4. tsptalk's Avatar
    Well, as we figured, that ascending trading channel was too steep (blue), and perhaps this more reasonably angled channel (red) will hold up.



    I see the market pop that we got in late October on the news of the proposed Greek bailout that quickly retreated (the spike above the red channel), to be similar to this news driven market drop.

    Yes, the 50-day EMA is key here and a close back above the 200-day EMA would be a plus. Is this a shake-out of the weak bulls, or is this the smart money pocketing their recent gains?

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