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Battling resistance

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12/28/12

Stocks lost ground yesterday, although the losses weren't created equally. The Dow dropped 89-points, the S&P 500 saw smaller losses, and the Russell 2000 was flat.

Daily TSP Funds Return
G-Fund: 0.0036%
F-fund: 0.07%
C-fund: -0.51%
S-fund: -0.17%
I-fund: 0.11%
The Consumer Confidence Index rose to 73.7 in November, which is the highest level since February 2008. Sounds good, huh? Like any sentiment type indicator, extremes can mean reversals. What happened during the 12 months after February 2008's high reading? The S&P 500 lost nearly 50% until the market finally bottomed in March of 2009.

The S&P 500 hasn't been able to crack the flat top formation created in the neighborhood of the 50-day EMA. The big rally on light volume last Friday is consolidating, which is normal, but the longer it waits to break into above that resistance, the odds increase for a push back down toward the 200-day EMA or even a test of the prior lows.


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


The Nasdaq is also testing the 50-day EMA as it is close to closing an open gap near 3000. It is above the 200-day EMA but those two open gaps below, particularly the larger one down near 2850, are going to become targets if it doesn't start trading above that 50-day EMA soon.



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


The small caps of the Russell 2000 have held up well during this week's consolidation, but it ran into its descending trend line and 50-day EMA yesterday and backed off. There is a small open gap, and a larger one that will also threaten this index.


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


We have seen some very positive signs from the sentiment indicators where the smart money is building a more bullish position going into the end of the year. But the short-term oscillator type indicators, which are more about being overbought or oversold, became overbought and have now rolled over.


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


A nice scenario for the market would be a pullback and a successful test of the recent lows. If that holds, it could be a good springboard into the end of the year where seasonality really gets bullish when we head into the 3rd week of December.


Chart provided courtesy of www.sentimentrader.com



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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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. JTH's Avatar
    Thanks Tom, I'm not looking for a higher high, but I am looking for a higher low from which to launch from.

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