TSP Talk Blog

Stocks opened lower on Friday but the low volume trading day saw dip buyers come in and, to my surprise, bought during afternoon trading despite heading into the weekend with economic concerns in Europe and escalating conflict on the Israel / Gaza border. The Dow gained 29-points but stocks ended the week with losses in all of the major indices.

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Bonds were up but we saw a negative reversal day on the charts, while the stock index charts created positive reversal days (although on light volume), so barring any negative announces before the open on Monday, the week starts with some positive momentum for stocks, as earning season gets busier.

After reversing to the upside on Thursday last week, the SPY (S&P 500 / C-fund) followed through with some modest gains on Friday, and created a second positive reversal day - but again, on very light volume. The trend is still up and support is holding, and in a bull market that usually means a buying opportunity.


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

The PMO indicator is sniffing out some issues and this is the longest it has been below its 10 day average in a few months, so there will be a test of the market's momentum this week. There is also some immediate short-term resistance here, but it is not particularly strong at this point and any upside action today would penetrate it.

The weekly chart is close to overhead resistance and shows why we may not have seen a new high last week. The resistance is rising so the market can still move higher, but the path of least resistance may suggest more pull backs in store for us this summer.


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

The Russell 2000 broke down from its rising support line last week and has now closed below the 50-day EMA for two straight days. A positive close today would go a long way to assure the bulls that the pullback is over. There are two small open gaps overhead that could pull the index back above the 20-day EMA.


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

While the small caps of the Russell 2000 struggle, the Wilshire 4500 (S-fund) has some larger companies in it which have performed better, and that has helped it develop a better looking chart. The 50-day EMA not only held but it brought in buyers and the reversal looks very similar to some of the positive reversals we saw in April and May that produced lows and strong rallies.


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

The dollar has been bouncing around and filling some open gaps. The 20 and 50-day EMAs seem to be holding it back right now and there are still a couple of open gaps down below the current levels, but we may have seen a bull flag created last week and that could produce a push higher so we have some mixed messages here.


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

Bonds rallied nicely last week but ran into resistance and possibly created a negative reversal day on Friday. Will this be a triple top or can bonds breakout to the upside this week? Whatever happens, stocks will probably do the opposite.


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


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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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