TSP Talk Blog

5/23/12

The Dow dropped a couple of points yesterday as an afternoon sell-off gave back all of the earlier gains, but it took a very late 50-point push higher just to bring it back to near break-even on the day.

Daily TSP Funds Return C-fund: +0.05% S-fund: - 0.18% I-fund: +0.05% F-fund: - 0.24% G-Fund: +0.004%

The S&P 500 closed up a fraction of a point, but that was enough to keep it above the 200-day EMA for a second straight day - more important than it might seem. The Dow and Nasdaq also remained above their 200-day EMAs.


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

The dollar bounced back yesterday and is now testing the January high again. It looked like a double top and pullback might be underway, but this move higher tells us that Greece is staying in the forefront of concerns. The rally in the stock market could depend on this resistance line near 81.80.


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

The dumb money put/call ratios (Equity and CBOE) are still well in overly bearish territory, which should be bullish for stocks. Monday's rally and yesterday's early strength seems to have potentially turned these indicators upward, and with these indicators in such bearish territory, it tells me that investors have money to buy, and of course money is the ammunition a rally needs to continue.


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

Here is the historical seasonality chart surrounding Memorial Day Weekend. It looks like the pre-holiday week is more negative than the post-holiday week, but there is something called holiday reversals that may prove more important.


Chart provided courtesy of www.sentimentrader.com

The holiday reversal theory is that the trend of the market leading into a holiday week has a tendency to reverse during that pre-holiday week. Since the trend was moving down before this week, a holiday reversal would give the market a lift this week, and so far that has been true. The problem is that after the holiday it tends to revert back to the old trend so the chart above may not be telling the whole story.

As I said earlier this week, the key will be the 200-day EMAs. As long as the indices are holding above the 200-day EMAs, we can feel a little better about the stock market. Should the 200-day EMAs break down, look for a lower low or at least a test of the recent lows to occur.

Thanks for reading! We'll see you tomorrow.

Tom Crowley


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