08/30/11
Stocks rallied sharply yesterday as the Dow gained 255-points, following up with Friday's big gains. The light pre-holiday volume will make it easier for the bulls or the bears to push things around. Yesterday the bulls took control.
For the TSP, the C-fund was up 2.84% yesterday, the S-fund jumped another 4.23%, the I-fund gained 1.92%, and the F-fund (bonds) lost 0.24%.
The S&P 500 rallied above the 20-day EMA and is now testing the upper end of the 1100-1200 trading range. The 2.8% gain is very impressive, but when you see the volume is about half of what it was during the early sell-off, you have to be at least a little skeptical.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Taking a look at the leaders and we can see that the Dow Transportation Index also broke above the 20-day EMA but hasn't quite made it to the mid-August peak. Instead we have a lower low, and possibly a lower high if the rally does not continue.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq had a big day as well. After filling the previously open gap late last week, the strong open yesterday actually produced another open gap. The gap is below the 20-day EMA so we will have to see if the Nasdaq can remain above the 20-day EMA or if it will pull back again to fill it.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The small caps of the Russell 2000 were up 4.8% but I am seeing a very large bear flag forming, which tend to break to the downside of the flag. I will be surprised if it can sustain a rally over 725 for very long.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The NYSE is now quite overbought, particularly if the bull market is not back. In a bear market, the +500 level is a time to consider selling.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I am smelling a sucker rally here. All of the charts above look to be trying to form a bottom, but looking at several prior market bottoms, I just don't see this market being able to rally too much longer without some kind of another test of the prior lows. The drop from 1350 to 1100 on the S&P 500 was just too sharp to see a sustained rally this soon.
I could be wrong (believe it or not
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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