TSP Talk Blog

11/20/12

Stocks rallied sharply on Monday, following through on Friday's positive reversal day. The Dow gained 208-points and most of the major indices gained close to 2% on the day.

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As we talked about yesterday, the reversal day on Friday was encouraging and we anticipated some follow through, and the outside day reversal was even potentially a market reversing bottoming formation based on what we saw last May and June in the S&P 500.

The S&P is now back above the longer-term rising trend line and the 200-day EMA, both obviously bullish and a relief since we already saw 3 closes below them. I like to give 3 to 5 days before declaring and trend broken and it was getting close.


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

I'm still a little concerned that we could see a shakeout downward move to scare the weaker bulls, but this holiday week does have a strong bullish bias so perhaps we can dodge that bullet... until Monday?


Chart provided courtesy of www.sentimentrader.com

The Russell 2000 (small caps) gained over 2% on the day and is back in its trading channel . Unfortunately it is a descending trading channel, and there is a big gap open down below 780. Like the S&P 500, the longer-term chart (now shown) is back intact.


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

The dollar saw a negative reversal day on Friday and we were speculating that it could follow-through on the downside to help stocks out, which it did. But the dollar, in the form of the ETF UUP, has some strong support near 22.05 and that will probably have to break to see more upside action in stocks.


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

The smart money of the OEX put / call ratio is back near that 1.25 mark which has been a good place to see a little rally. That could mean that this rebound has more legs.


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

With the fiscal cliff talks ongoing and no chance of resolution before Thanksgivings weekend, and the violence in the Middle East still raging, the headlines could throw us a curveball. I like to think that the news comes out in the charts first so if stocks can climb a few more days, it could mean good news is coming.

One thing to remember is that there is a tendency for stocks to reverse the main trend during pre-holiday trading, only to head back in the direction of the larger trend after the holiday, so that's a little warning for next week.

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

Tom Crowley


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