Stocks rallied strongly after the Fed announced that they were cutting the Fed Funds rate to "a range of 0% to 0.25%." The C fund gained 5% on the news, while the S and I funds jumped an amazing 6% each.
I am not an economist, so I don't know exactly how to interpret this. On the one hand, there is a phrase that you "don't fight the Fed", meaning if the Fed is cutting rates, don't bet against the stock market. Yesterday's rally proved that. On the other hand, many people have blamed this whole credit crisis on Greenspan as he made money too cheap and too easy to get, which seems to be where we are again. Lower rates will also hurt the dollar, and may trigger future inflation. It is certainly a tough call, as is what to do with our money now.
This is also one reason that I don't base my investment decisions primarily on the fundamentals. I watch the charts and indicators. So, what are they telling us now?
The S&P 500 remains in the rising wedge pattern, which is bearish, but it also broke above the short-term resistance when it moved above the upper end of the descending trading channel, which is bullish - as long as it can remain up there. Trading volume could have been better.
The next areas of resistance that could be tested will be 918 (last Monday's high) and the 50-day moving average, which is currently 932, but declining daily. (For the record, 932 is the 50-day "exponential" moving average. The 50-day "simple" moving average is at 902.) The PMO indicator is also at a level that may cause some trouble, but I wouldn't call that a primary area of resistance.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
One thing I have pointed out a few times this year, is the ability for bear markets to put together some very powerful rallies. Considering what we have gone through this year, I found it quite amazing that during the 2000-2002 bear market, the S&P 500 managed to rally all the way up to the 200-day moving average several times. If the S&P were to do that now, it would have to climb to the 1100 to 1150 level, which would be 26% above where we are now, and an amazing 55% above the low made in November.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
That may be a little too much to ask if we are going to remain in a bear market, but the reason the rally would be so large is because the S&P500 has dropped so far below the 200-day moving average in such a short amount of time.
One big news driven rally does not a bull market make, although the fact that we have seen some improvements in the charts and indicators, and the fact that we are entering one of the strongest seasonal periods of the year, if not the strongest, does give us some hope for some continued gains. But I would like to see 2 or 3 closes above that recent break of resistance in the S&P 500.
Yesterday I mentioned that the 12th trading day in December (which was yesterday) had a strong positive bias historically, but that days 13 and 14 were down more often than up. This brings us to our next dilemma. If the market is going to show us something positive, it will follow through with yesterday's gains with another day or two of gains. But, if we do get another 2-days up, that will bring the market into a serious overbought condition, and we wouldn't want to buy there. On the other hand, if the market pulls back in the next day or two, rather than buying the dip, we would have to strongly consider that yesterday's rally was a one day wonder, particularly if the S&P falls back into the descending trading channel. Tough call. Our best bet might be a pullback that holds above the 890-900 area.
I would really like the idea of catching a nice double digit return to end this dismal year, but we are still in a bear market (until proven otherwise) and we don't buy rallies in a bear market - you sell them. The question is, how much of a rally can we expect to see, if we do in fact get a sustained rally? Remember, we are already up about 23% off of the November low.
Quick administrative note: Stephen Losey of FederalTimes.com is going to be writing an article on the increasing number of TSP participants who have stopped contributing to the TSP. If you are one of those people and would like to be interviewed by Stephen for the article, please contact him at slosey@federaltimes.com. Thanks!
That's all for today. Thanks for reading. See you tomorrow!
I am not an economist, so I don't know exactly how to interpret this. On the one hand, there is a phrase that you "don't fight the Fed", meaning if the Fed is cutting rates, don't bet against the stock market. Yesterday's rally proved that. On the other hand, many people have blamed this whole credit crisis on Greenspan as he made money too cheap and too easy to get, which seems to be where we are again. Lower rates will also hurt the dollar, and may trigger future inflation. It is certainly a tough call, as is what to do with our money now.
This is also one reason that I don't base my investment decisions primarily on the fundamentals. I watch the charts and indicators. So, what are they telling us now?
The S&P 500 remains in the rising wedge pattern, which is bearish, but it also broke above the short-term resistance when it moved above the upper end of the descending trading channel, which is bullish - as long as it can remain up there. Trading volume could have been better.
The next areas of resistance that could be tested will be 918 (last Monday's high) and the 50-day moving average, which is currently 932, but declining daily. (For the record, 932 is the 50-day "exponential" moving average. The 50-day "simple" moving average is at 902.) The PMO indicator is also at a level that may cause some trouble, but I wouldn't call that a primary area of resistance.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
One thing I have pointed out a few times this year, is the ability for bear markets to put together some very powerful rallies. Considering what we have gone through this year, I found it quite amazing that during the 2000-2002 bear market, the S&P 500 managed to rally all the way up to the 200-day moving average several times. If the S&P were to do that now, it would have to climb to the 1100 to 1150 level, which would be 26% above where we are now, and an amazing 55% above the low made in November.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
That may be a little too much to ask if we are going to remain in a bear market, but the reason the rally would be so large is because the S&P500 has dropped so far below the 200-day moving average in such a short amount of time.
One big news driven rally does not a bull market make, although the fact that we have seen some improvements in the charts and indicators, and the fact that we are entering one of the strongest seasonal periods of the year, if not the strongest, does give us some hope for some continued gains. But I would like to see 2 or 3 closes above that recent break of resistance in the S&P 500.
Yesterday I mentioned that the 12th trading day in December (which was yesterday) had a strong positive bias historically, but that days 13 and 14 were down more often than up. This brings us to our next dilemma. If the market is going to show us something positive, it will follow through with yesterday's gains with another day or two of gains. But, if we do get another 2-days up, that will bring the market into a serious overbought condition, and we wouldn't want to buy there. On the other hand, if the market pulls back in the next day or two, rather than buying the dip, we would have to strongly consider that yesterday's rally was a one day wonder, particularly if the S&P falls back into the descending trading channel. Tough call. Our best bet might be a pullback that holds above the 890-900 area.
I would really like the idea of catching a nice double digit return to end this dismal year, but we are still in a bear market (until proven otherwise) and we don't buy rallies in a bear market - you sell them. The question is, how much of a rally can we expect to see, if we do in fact get a sustained rally? Remember, we are already up about 23% off of the November low.
Quick administrative note: Stephen Losey of FederalTimes.com is going to be writing an article on the increasing number of TSP participants who have stopped contributing to the TSP. If you are one of those people and would like to be interviewed by Stephen for the article, please contact him at slosey@federaltimes.com. Thanks!
That's all for today. Thanks for reading. See you tomorrow!
