TSP Talk Blog

12/13/12

Stocks saw modest gains in early trading, then the Fed stepped in and shook things up and at the end of the day most indices were flat to slightly lower. The Dow ended the day down 3-points while the S&P was up less than a point.

Daily TSP Funds Return G-Fund: 0.0036% F-fund: -0.15% C-fund: 0.06% S-fund: -0.31% I-fund: 0.31% More returns

The S&P 500 hit that descending resistance line which connects the two October highs, and backed off. It has been up for six consecutive days and we're seeing some short-term overbought readings. I don't see this as a big problem, but it could mean a couple more days of digesting recent gains.


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

The Dow Transportation Index is in the same boat. There is some support below, but the inability to close at new highs and have it post back-to-back negative reversal days says investors may back off for a day or two. A pullback to the 20-day EMA would be healthy, but only if it holds.


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

The Nasdaq and Nasdaq 100 indices have both completed some very impressive inverted head and shoulders patterns. This is where the above scenario - a pullback - wouldn't make as much sense for the Nasdaq Indices, unless they plan to retest the middle of the head, which would be a 100 point or so decline from here, and I don't really see that happening - unless Apple falls apart.


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

The Russell 2000 finished filling the overhead gap, and many times that will act as resistance. There is still a small gap just below, and the negative outside day leads me to believe that will get filled today. From there however, the inverted head and shoulders neckline should hold up if this market rally is for real.


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

Here are two indicators: One is bearish, one bullish.

The ARMS Index is hitting a level that does tend to put some pressure on stocks - at least in the short-term. That would go along with some of the chart patterns we see above.


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

On the bullish side, this information from sentimenTrader.com suggests some very positive action for the rest of the month, and then some.

From sentimenTrader.com: Many indexes are struggling to reach the glory of trading at a new all-time high. But enough individual stocks have done so that is has pushed the NYSE advance/decline line to a new all-time record. This line is simply a cumulative sum of the day's advance/decline figure. So if 1,500 more stocks rose today than fell, the a/d line would increase by 1500 points.


Chart provided courtesy of www.sentimentrader.com

Note: Due to differences between data vendors, some might not show a new high in the a/d line. In the table, "random" returns aren't precisely comparable due to using end-of-December returns, while many of the precedents occurred early in the month, but even so the differences are minor.

There are some big numbers in that chart including 12 out of 13 positive returns in December after the advance/decline line hits a 5-year high in December.

Most of us here are more concerned with the next 2 to 4 weeks than months, but looking out 3 to 4 months we are still seeing 85% positive returns in March and April. This is way above the 60% to 66% of random March and Aprils. And look at those average returns.

So, we could see some overbought hiccups, but despite the problems on the fiscal cliff front, the charts are telling us not to get too bearish.

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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