9/17/12
Following up on Thursday's 200+ point day in the Dow after QE3 was announced, stocks rallied modestly again on Friday with the Dow picking up another 54.
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[TD="align: center"] Daily TSP Funds Return[TABLE="width: 154"]
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[TD="align: right"] G-Fund:[/TD]
[TD="align: right"] 0.0029%[/TD]
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[TD="align: right"] F-fund:[/TD]
[TD="align: right"] -0.27%[/TD]
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[TD="align: right"] C-fund:[/TD]
[TD="align: right"] 0.40%[/TD]
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[TD="align: right"] S-fund:[/TD]
[TD="align: right"] 1.10%[/TD]
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[TD="align: right"] I-fund:[/TD]
[TD="align: right"] 1.08%[/TD]
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The action is technically positive, and the fact that the Fed is just going to keep printing money is bullish for stocks in the intermediate-term. That said, a little short-term pullback is probably due.
The S&P 500 moved up through the rising trading channel on nice volume That's very bullish, but a sign of being over extended in the short-term. One thing we'll have to watch for is whether the top of that trading channel, which was the resistance, now turns into a support line.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow Transportation Index has now been up for 7 straight days and it has taken out the upside of the triangle formation (red). This should be a bullish set up, but after 7 days I would expect a little breather...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
... particularly with oil testing $100 a barrel again. The Transportation Index is very sensitive to economic conditions and usually leads the way for stocks, but when oil starts hitting $110 or higher the companies in the Transportation Index start feeling the heat of higher fuel costs so we'll have to see how high oil and the Trannies can go in unison before one gives.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Oil is being helped by a combination of trouble in the Middle East, and the sinking of the dollar thanks to QE3.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Treasury yields have been rallying and on Friday we saw the highest yield on the 10-Year since May. The chart shows a higher low, and now a higher high. Should this be a change in trend it would be bearish for bond prices and the F-fund in the intermediate-term (weeks to months).
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The put/call ratios show the dumb money near highs in bullishness while the smart money is deep in defensive mode. That tends to happen near market tops, but the dumb money has been doing well being bullish all summer.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Our TSP Talk Sentiment Survey continues to show a stubbornly bearish sentiment from our readers.
Bull markets feed off of excessive bearishness because the bears are potential buyers. If this survey instead came out 100% bulls, 0% bears we would say there is no fuel for the rally to continue. The buyers are bone dry. But with 46% of those survey still believing stocks will go down, which has been the case for months now, it keeps stocks buoyant, and that is what we have seen all summer. Sure, there will be pullbacks, but that big chunk of bears probably means the dips will continue to be bought.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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