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The 1%'ers

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by , 03-06-2012 at 10:49 PM (1750 Views)

3/07/12

Stocks finally saw a meaningful pullback yesterday as the Dow and S&P 500 experienced their first 1% declines of the year. The Dow lost 204-points - a loss of 1.6%, while small caps and the international stocks lost 2.0% and 2.6% respectively.


For the TSP, the C-fund was down 1.53% yesterday, the S-fund dropped 1.99%, the I-fund fell 2.57%, and the F-fund (bonds) gained 0.16%.


The long ascending trading channel has broken and the S&P 500 has pulled back from the double top - at least for now.


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

The indicators had deteriorated a while back so this is certainly no surprise. The surprise was that the steep rally had lasted so long. A closer look shows that the 20-day EMA was clearly broken, and the 50-day EMA is only about 1.5% below yesterday's close.


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

If you recall, we had been saying that strong bull markets don't usually drop below the 50-day EMA very easily so I will look at a test of the 50 EMA as a buying opportunity.

Time-wise, the data looks to be telling us that it may not be just a quick drop and a bounce back.
As we talked about last week, the S&P 500 had not closed below the 20-day EMA for over days, and that was an extreme. It had happened 3 other times since the March 2009 bear market bottom, and each time a pullback was imminent. Monday was day number 51 and the streak was broken on Tuesday.


Chart provided courtesy of www.sentimentrader.com

The sample size is small but the results were fairly consistent. Looking out 1 week to 1 month, stocks underperformed when compared to random results. The 2-week period showed the least positive results.

The Dow Transportation Index dropped sharply below the 50-day EMA and is now less than 2% away from the 200-day EMA.


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

That's not a great sign for the S&P 500, but the price of oil has a lot to do with the impact on this index. Of course increased shipping costs eventually hit almost every sector of the market so it will have its impact.

Oil was actually down yesterday, along with most stocks and commodities, with the help of a rally in the dollar. The dollar rallied on the economic concerns in Greece and China.

A reminder that the February jobs report will be released this Friday. Consensus estimates are looking for a gain of about 206,000 jobs, and an unemployment rate of 8.3%.

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

Administrative Note: RevShark is offering free access to his TSP Timing Newsletter and Daily Afternoon Commentary from March 1 thru March 14. Please click here for more information.

Tom Crowley


The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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Comments

  1. WhoDey's Avatar
    Tom,

    You mentioned a couple of weeks ago that some early estimates projected that the February unemployment rate would come in at 9% ... up from January's 8.3%. From today's post, it sounds like additional data has upgraded the 'consensus' estimate to 8.3%. I was concerned how the markets would react to an increase to 9%.
  2. tsptalk's Avatar
    That 9% was a gallup poll result last month, and we were speculating that the jobs report will be closer to that. For that reason I expected the estimates to be higher than 8.3%. I guess we'll find out on Friday.

S&P 500 (C fund)
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