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Was Friday's reversal enough to turn things around?

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Stocks were mixed on Friday with the Dow shedding 17-points, the S&P and small caps were basically flat, and the Nasdaq was up thanks to some positive tech earnings. But for the first time in a while we saw stocks open weakly and close strong. Is this a sign of life for a market that has been rather sluggish over the last two-months?

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The improved action on Friday may be a welcomed surprise for the bulls who have not been able to make any headway for weeks. The charts are below some key resistance levels and there are bear flags all over. The indicators don't look as bad and so a positive push upward by the bulls this week could negate all of the bearish chart formations. Otherwise, the market could be in some trouble.

Over the weekend a major acquisition of Time Warner by AT&T was announced and often that is a positive catalyst for the market, and the modestly positive open in the stock index futures market confirm some optimism. Let's see if that lasts into Monday's open, and more importantly, into the close.


The SPY (S&P 500 / C-Fund) has been able to hold above the September lows so far this month, and that's a good sign, but as I mentioned these little bear flags are popping up all over and when trading below the 50-day EMA it makes things a little tougher for the bulls. A rally above the open gap and descending resistance line near 216 would be a big boost for the bulls.




The weekly chart posted an "inside week" meaning the week's high was lower than the prior week's high, and the low was higher than the previous week's low. The rising dashed line represents the longer term support line of this year's rally and that has been broken but for the second week in a row it closed right on it. The red horizontal line is the neckline of the big inverted head and shoulders pattern that wee have watched for months. It has held so far, as they should, but any more downside and close below 2120 would be a bearish indication and then the next step would likely be the 50-week EMA near 2090.




The DWCPF (S-fund) had a nice reversal day on Friday but remains in a bear fag below the 50-day EMA. 1080 and 1085 are the levels that need to get taken out for the bulls to take charge again.




The Dow Transportation Index has been one of the better performing indexes, and being the leader that is a good sign. It has been drifting sideways to lower since the early October high but so far the 50-day EMA has been able to hold up as support. The bulls need this one to hold.




The EFA (I-fund) is in the same boat as the S&P and small caps - bear flag and below the 50-day EMA.




The price of oil has been able to hold above the $49 level which we wondered if it could do since the $51 - $52 area seemed to be the top of a large trading range and if it was going to remain in the range we thought it may start to move down toward the lower end of the range near $40. Holding above $49 gives it hope that a new leg higher could start. Nobody likes to pay higher prices for gasoline, but when oil and gas are going higher it usually means the economic conditions are improving. We'll see.




The AGG (Bonds / F-fund) was up on Friday but it stalled again near the 111.80 area. It may be the top of a right shoulder in a head and shoulders pattern so this could be an area of some resistance. I don't know what would make bonds rally from here, but a move toward the 112.30 descending resistance line is still possible despite a potential large top forming in bonds.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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