06/13/13
Stocks opened sharply higher yesterday, looking to get back some of Tuesday's 217-point loss in the Dow, but the early 120-point rally turned into a 126-point loss by the close on Wednesday. Now the indices are testing some important support so don't blink in the coming days.
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[TD="align: right"] +0.0043%[/TD]
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[TD="align: right"] -0.17%[/TD]
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[TD="align: right"] -0.82%[/TD]
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[TD="align: right"] -0.91%[/TD]
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[TD="align: right"] -0.66%[/TD]
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The S&P 500 is back testing the 50-day EMA and getting closer to confirming a lower high - if it falls below the early June low.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
You can see how important the current support levels are as there is a lot of room below if buyers don't step up quickly and support breaks.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The weekly chart reminds us how vulnerable the S&P 500 is considering its position in the longer-term trading channel (black) off of the 2009 lows. Again, that short-term support line (red) is quite important at this time.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Finally, rummaging through the charts on Wednesday night got me noticing the similarities between the current S&P chart, and that of the top of the 1987 chart. Not exact, but certainly some similarities.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Of course you probably know what happened in 1987.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The tricky part back then was that right about where the current S&P 500 sits on the 1987 chart (black arrow), there was a sharp rally that took the index up quite a bit off of the September double bottom low. This kind of action surely sucked in some buyers who were scared out on the initial drop near 310, which was retested a couple of weeks later. And of course they probably paid a terrible price.
I'm not saying the market is going to crash, but you might want to stay on your toes in the coming weeks if you are in stocks, and at least consider selling any short-term rally we may get in the coming days - just in case. The market is notorious for trying to get people leaning the wrong way at the worst time.
I will probably be called a fear-monger or opportunist for saying this, but if you know someone who doesn't really watch their TSP or retirement account very closely, you may want to have them see this information. You might have a friend for life it happens. What's the worst that can happen if we're wrong? We miss a couple of up days?
I suggest telling them something like:
"The market probably won't crash - it's a very rare occurrence, but thought you should see this just as a heads up."
You can use this link to take them to a copy of this commentary:
http://www.tsptalk.com/mb/blogs/tsptalk/2468-1987-sequel-stay-your-toes.html
For those more sophisticated, you might add the warning from the 5th Hindenburg Omen we recently got.
Use this link if you think the Hindenburg Omen data might be of interest:
http://www.tsptalk.com/mb/blogs/tsptalk/2466-pause-another-omen.html
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.html
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