TSP Talk Blog

04/25/13

Stocks were mixed yesterday as the Dow lost 43-points, the S&P 500 and Nasdaq were flat, and the leading Transports and small caps did well.

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The S&P 500 was flat (up 0.1%) and may be looking for a pause after 4 days in the black, but we're about a 3rd of the way through earnings season and the remaining reports may still be enough of a catalyst to move the market in either direction.


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

The Dow Transportation Index hit the descending resistance line in its narrowing apex, and went no further. It did manage a 0.6% gain but this resistance will put it to the test today, otherwise we'll see losses in the index.


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

The small caps are also testing the top of their potential new descending trading parallel channel.


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

The charts are all showing these potential problems in the form of resistance and descending resistance, but very few indicators are showing any signs of trouble. Perhaps I am not looking at the right ones, but this NYSE overbought / oversold indicators is about the only one that gives me any concern, and it's not that bad at all.


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

The indicator shows that the NYSE Composite is overbought, but the +553 reading is not an extreme reading. If we were in a bear market +500 would be a concern, but in a bull market we could see +750 to +1000 before the market gets excessively overbought.

As I have been saying over and over, investor sentiment is still very bearish and the readings are closer to what you'd see at market bottoms than tops.

One word of warning: When we saw that mini flash-crash on Tuesday after the fake tweet of a bombing at the White House, the Dow dropped about 130-points within a couple of minutes. This tells me we could be one event away from sending nervous investors running away very quickly. Granted, a bombing at the White House might be one of the worst psychological events the country could experience, but what about an economic tragedy like a cyber attack on financial institution? Probably not likely, but this is why buy and holders are in danger. They take the brunt of sell-offs while market timers at least have a chance to be on the sidelines when something sinister happens.

We don't want to live in fear waiting or anticipating something like this, but if we start to see the charts breaking down for no apparent reason, while the indicators remain benign, we should take it as a warning sign. Over the years we have seen several times where the market fell prior to bad news. The market as a whole, is a lot smarter than the people that create it. Watch those support and resistance lines for clues.

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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