4/19/12
Stocks pulled back yesterday after some less than exciting earnings reports from two big Dow companies - IBM and Intel. The Dow lost 83-points on the day - not too terrible considering the nearly 200-point gain the prior day.
For the TSP, the C-fund was down 0.40% yesterday, the S-fund lost 0.52%, the I-fund slipped 0.05%, and the F-fund (bonds) gained 0.10%.
The S&P 500 is still above the key support levels and the 50-day EMA, but the bear flag is still waiving. Yesterday I was back-peddling away from the bear flags because the Nasdaq and Dow Transportation Index (the leaders) didn't really display strong bear flags, and because the S&P 500 was above the 50-day EMA. But until we see a break to the upside, I guess we better keep an eye on that flag.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
A closer look makes it more obvious as we see the sharp decline, followed by some rising choppy action - a classic bear flag.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The NYSE Composite and the Russell 2000 also show clear bear flags so again, I don't want to ignore them.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
One reason I am starting to lean toward the bear flag possibly breaking down is this bit of info from sentimenTrader.com:
They say that, "it is rare to see a decline in sentiment over an 8-week period when the S&P 500 is essentially unchanged and had hit a 52-week high sometime during the past two months."
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Of the six other times it's happened, every time the market had rallied then fell back, leading to a rise in uncertainty among investors.
Chart provided courtesy of www.sentimentrader.com
The one bright spot, they noted, 1998 saw the S&P return +5% during the next 8 weeks. The bad part is that that 8th week marked the exact high for the S&P and it subsequently lost -16% in the two months following that.
So I see this as similar to other market tops. The market rarely hits a new high, then just turns into a bear market. There is usually more churning, new highs, pullbacks, almost news highs, etc., then a top. We may be in the churning point now where new highs may not be out of the question, but it may find it tough to hold. But while the S&P 500 trades above the 50-day EMA, I try to lean toward the bullish side.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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