TSP Talk Blog

06/17/13

After Thursday's 180-point rally, the Dow gave back 106-points on Friday as volatility remains high and the indices continue to struggle after hitting the longer-term resistance line.

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Back on May 22nd, the S&P 500 made a new high but put in a negative outside reversal day, which can be a market turning point. In the short-term, the S&P has pulled back a modest 3.6% from that peak and there is a triangle-like formation reaching an apex and the battle between rising support and falling resistance should come to a conclusion this week. Keep in mind that often these triangle formations break one way, only to fail and go the other way - just to keep us leaning the wrong way.


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

It's too early to say if this is the end of the intermediate-term rising trend, but the indices have been flirting with breaking below support this month, and that is where my attention is now. The more often support is tested in a short period of time, the more vulnerable it becomes.


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

Last week I mentioned that Japan's Nikkei stock market had fallen 20% in the last few weeks and may be vulnerable to a crash. That was something I was concerned about when I was making the 1987 comparisons in last week's commentaries, to our current index charts.

This Nikkei chart below shows how quickly a parabolic stock market can turn on you. Intermediate-term support broke in late May and it has lost another 1000-points since.


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

Like the U.S. market, Japan Nikkei had also bottomed in 2009. Unlike the U.S. market, the Nikkei has been in a downtrend since 1990 and it is now sitting at a level they saw in 1985 - almost 30 years ago.


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

The folks at DecisionPoint.com said this about the Japanese government intervention and artificially low interest rates as they tried to print their way out of deflation...

"For this we can thank the super-human efforts of the government to avoid the inevitable by printing money. After over 20 years of avoidance, their economy has still not recovered, and recovery is nowhere in sight."

The U.S. economy may not be in the exact same situation, but we're getting there. The thing I wanted to point out is how the long-term resistance line on the Nikkei held and may have produced another top on their descending trading channel. At the same time the S&P 500 hit the top of its trading channel. It is in a rising channel, but should it test the bottom of the channel, it is still a long way down from current levels.


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

Bonds have been in a short-term down trend recently and because of that, smaller traders (dumb money) have been getting very bearish on them.

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

Past readings down here by these small speculators have produced at least relief rallies in bonds so it may be an opportunity for our F-fund to make some money, or at least outperform the G-fund.

The FOMC meeting is Tuesday and Wednesday of this week, with Ben Bernanke giving a press conference on Wednesday. Could be a market mover.

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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