TSP Talk Blog

I was out of the office most of the day again yesterday and it looks like I missed a whopper. When I woke up just before the bell and checked the quotes (I'm in the pacific time zone right now so it was 6:15 AM) the futures were flat and it looked like we were on the way to another flat day. But buyers stepped up rather quickly and when I checked a couple of hours later I saw what had happened. The Dow gained a solid 0.55% but the broader indices, particularly the Nasdaq and small caps, really had big days.

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The Dow faded a bit after the morning highs but the S&P and Nasdaq closed close to the intraday highs and the Nasdaq actually posted a new all-time high. That's great and everything always seems rosy at times like these, and clearly I have been wrong about this market, but touching new highs may be a bell ringing that those in stocks may want to make note of.

I've told you my reasons why I think stocks are overvalued and that investors may be due for a rude awakening at some point this year, but markets that are near new highs tend to touch them, as if pulled up there, but then the tough part begins. Because we are seeing some of the highest price overvaluations as we have seen since the 2007 and 2000 market peaks, let's compare today's chart to what happened then...

This rebound off those oversold lows in December has been quite impressive, and the peak to potential peak (in this case) has lasted 7 months.




In 2000 we saw a double top - or fairly close to it - with a peak to peak duration of 6 months before that bear market started showing its ugly head.




In 2007 there was a double peak, and that one had a new high in there just to lure more folks in, just before the beginning of the end started.




Does that mean the top is now in? Who knows for sure, but I'd say we're inching closer and yesterday's action felt like a capitulation (giving up) from the bears, and if you've followed us here for any time we know that capitulation lows tend to cement in bottoms, so are we close to cementing in the next high?

As I said, I was on the road yesterday so I'll just post a couple of charts below and watch and see what happens as the S&P 500 nears that old high.

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The S&P 500 (C-fund) rallied hard and hit the top of the trading channel, and possible wedge formation, at the day's highs.




The Yield on the 10-year Treasury did dip back below that 50-day EMA as we suspected it might, but it remains in the area. Filling the gap seems like a reasonable expectation and but the low near 24.75 may be the big indication of whether we see new lows here as the descending trend remains intact.




The AGG (Bonds / F-fund) was up with those yields down and it is trying to hold at that key level of support near 108.




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

Tom Crowley


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