TSP Talk Blog

2/26/13

Stocks opened higher on Monday morning, sporting an early 81-point gain in the first hour of trading. Apparently we're all now concerned about the Italian elections, but I think the market and investors were just looking for a reason to take a break after hitting that overhead resistance.

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The Dow actually hit a level not seen since 2007 in the early morning trading, before falling about 300-points from the highs of the day and closing near one-month lows. It ended the day down 216-points.


Chart provided courtesy of www.decisionpoint.com

The S&P 500 hit that old support line which, as we talked about yesterday, acted as resistance. Volume picked up and it is now in danger of testing the 50-day EMA, which would be a first for 2013.


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

This was our concern - the S&P 500 hit some intermediate-term resistance, and being overbought, a pullback seemed inevitable. The only question was, when would it happen?


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

The Nasdaq is testing the 50-day EMA for a second time in 3 trading days and now we have to rethink the January 2 open gap as a possible downside target should the pullback continue.


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

Yesterday's 90% down volume gave us a rare reading while near a 52-week high...


Chart provided courtesy of www.sentimentrader.com

Per sentimenTrade.com: "There isn't much to get excited about from those precedents. There was something of a short-term rebound in the majority of cases, but nothing too spectacular. The good news is that three months later, there were only two losses, and only one that was meaningful, so that's something.

"Only once before has this happened when the S&P was at a new high less than a week ago. That was March 9, 1945. After that, the S&P bounced about 2% during the next week, then dove nearly -5% during the next seven days. That drop triggered a major long-term bottom."

The yield on the 10-year Treasury Note broke below the rising support line yesterday sending bond prices and the F-fund higher.


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

We have been calling for a top but I would be surprised if the market just rolled over without the bulls putting up more of a fight first. Volatility is picking up and we could see some sharp bounces just to confuse us.

But there is one thing for sure, these big moves confirm we are seeing a change in the character of the market, and as I have been saying for a couple of weeks now, the easy money was likely already made, and the buy and holders may have had their day in the sun. It could be time for the traders to have their turn as volatility picks up.

With the jobs report and the sequester deadline coming on Friday, the fireworks and volatility may continue for at least a few more days.

Thanks for reading! We'll see you tomorrow.

Tom Crowley


Posted daily at TSP Talk Market Commentary

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