TSP Talk Blog

08/12/13

Stocks declined on Friday although small caps held up pretty well. The Dow lost 73-points, but once again that was well off the morning's 150-point losses. It was the first weekly loss of any significance since June.

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The S&P 500 pulled back from recent highs after falling below the rising support line last Tuesday. But so far the next levels of support, the 20-day EMA and the May high, have held. We are seeing some cracks in the indicators, plus another Hindenburg Omen warning, so I am expecting the short-term to be somewhat rocky.


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

The weekly chart of the S&P 500 shows just how strong the long-term trend has been, but no matter how you slice it, the chart looks extended, and a pullback from the overhead long-term resistance line seems like a logical expectation.


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

The small caps of the Russell 2000 are also testing the very long-term overhead resistance, which goes back to the 2000 market peak.


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

The momentum and oscillating-type indicators, which measure extremes, are showing signs of weaker momentum despite recent new highs. A divergence between higher stock process, with lower breadth (stocks up vs. down) and volume momentum, can some times precede market weakness.


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

I mentioned this last week and talked about it in the Weekly Wrap Up but in case you missed it... We had 3 Hindenburg Omen signals last week, and that makes 11 within the last 50 trading days. sentimenTrader.com went back to the mid-60's to see how the market performed under similar circumstances...


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

It looks like even if we see 9 Hindenburg Omen signals within 50 days it's a bad sign, but this chart below breaks down the 11 or more HO signals going back to 1965.


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

We have been in an extraordinary market environment this year and the bulls have been in charge almost the entire time. But when we see an indicator like this that shows losses 3-months out every time it has occurred in the last nearly 50 years, it's hard to ignore.

Being that we are in a bull market, it could just be another minor pullback like the 5% decline we had in June, that turns out to be just another buying opportunity. That seems most likely. But then again, those long-term (weekly and monthly) charts are showing that we are at the top of some major trading channels and perhaps we are due for something a little more sinister.

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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