TSP Talk Blog

06/11/13

Stock opened higher on Monday morning but the spike was met with immediately selling pressure. From there the indices rebounded again and straddled the break-even mark all day where the Dow and S&P 500 closed basically flat.

Small caps and the I-fund led the way with modest gains while the Dow Transportation index saw minor losses.

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The S&P 500 begrudgingly pushed above its short-term resistance line while volume dropped significantly over last week's action. I cannot say this chart looks bad. As a matter of fact it is difficult to find much wrong with it, except for possibly the recent increase in volatility. There is one major concern, but it doesn't show up on the chart. I'll explain down below.


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

The longer-term chart shows the support from the long ascending trading channel (red), and the short-term resistance (blue) breaking, and potentially becoming a new support area - although it would be descending support.


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

The small caps did well yesterday and even produced a positive reversal day. It hasn't quite tested the overhead descending resistance line like the S&P 500, but it is actually closer to a new high than the S&P 500 is.


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

Like the put/call ratios that we talked about yesterday, this Rydex Cash Flow Ratio indicator is showing that investors (dumb money) are getting quite bearish. The 0.95 area that is being hit now has produced some very decent buying opportunities over the last 2+ years, although over the years we've seen such much lower (lower on the chart / higher in number) readings hit.


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


As I mentioned above, there is one big bearish warning sign flashing very loudly. Whether you believe in these types of indicators or not, it is what it is.

There has been another Hindenburg Omen signal and that's the 5th in the last two weeks. In deference to the sentimenTrader.com subscribers, I won't go into too much of what they had to say, but this chart shows the prior rare instances when we have seen five Omen signals within a two week period.


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

This is one of those things where, if the market crashes in the near future, we can't say we weren't warned. But the charts and many indicators look so good that we might feel silly missing out on what looks like a no-brainer rally, based on a hokey indicator.

I guess it's just a matter of personal preference or your tolerance for risk. There's a good chance that the market will continue to act bullishly. But if it doesn't, it could be a very ugly sell-off based on the Hindenburg Omen. Like Trader Fred used to say in each of his Monday reports, "Knowing when a transitional condition appears and is active is important in the world’s largest and most popular casino."

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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