Despite being significantly overbought after a week of big gains and probably due for a little profit taking, stocks held up rather well yesterday. The Dow did lose 31-points, but the broader stock indices finished flat to mostly higher with small caps and the international stocks closing with nice gains. Bonds were down.
[TABLE="width: 79%, align: center"]
[TR]
[TD="width: 300"]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The SPY (S&P 500) came within about a point of filling the open gap yesterday before pulling back and giving up some early gains. It looks like a tired chart and you can't blame it after the over 5% move from last Wednesday's low to yesterday's high. There is some potential resistance just overhead (red dashed line) if we create a parallel channel using the two recent lows as support.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The annual chart remains within a large rising trading channel, and just as the 20-day EMA crossing below the 50-day EMA was a short-term sign of being oversold, the PMO crossing above its 10-day EMA may be a short-term sign of being overbought. It actually hasn't crossed officially, but it probably will today.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Here's the surprise, the Nasdaq 100 (QQQ), which are the larger technical stocks, actually made a new multi-year high yesterday. So despite all of the negativity in the market this year, this one market leader is doing just fine. The other leaders like the Transportation Index and small caps are lagging badly, so there is still work to be done in the bull market.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Now, onto the chart that is getting all the attention - and perhaps too much attention:
I believe that my son's old baseball coach may have a TSP account because he and his wife were in the military, but as I recall, we never even had a discussion about stocks or the TSP, and TSP Talk was one of the sponsors of his team at the time. This leads me to believe he knows little about the stock market. The reason I bring this up is because he is one of my friends on Facebook, and yesterday he posted a copy of this 1929 comparison chart on Facebook...
Chart provided courtesy of www.mcoscillator.com, analysis by TSP Talk
"Nobody goes there anymore. It's too crowded." - Yogi Berra
As Yogi said, too many folks are talking about this crash chart now, and to me that really decreases its effectiveness. We did a good job of taking advantage it while we could and yes, the market is overbought and could use a rest here, but this recent January sell-off and February rally tipped off the rest of the world including the dumb money, and that means our advantage may be over. I won't throw caution to the wind since stocks are very overbought right now and the chart still shows a bearish 3 peaks and a domed house formation, but today I'm less inclined to believe a crash is coming.
Bonds surprised me and these two bond ETFs fell below their 200-day EMA's. The next test would be the 50-day EMAs. If stocks do pull back we could see a rebound in bonds but those important technical support areas need to hold. The longer these charts stay below the 200-day EMA, the more likely that the 2014 rally was just a rebound in a bear market for bonds.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Read more in today's TSP Talk Plus Report. We post more charts and indicators, plus discuss the Sentiment Survey Results and its 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 TSP Talk Market Commentary
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
