Another weak open was salvaged by some intraday buying as the early 60+ point decline in the Dow turned into a small 13-point loss by the close. Even better, the S&P 500, Nasdaq, small caps and the Dow Transportation Index all closed higher.
For the TSP, the C-fund added 0.04% yesterday, the S-fund gained 0.42%, the I-fund gave back 0.68%, and the F-fund (bonds) was up 0.23%.
Small caps continued to outperform, which is a good sign, and I really like the look of the S&P 500 chart. There are many positives here. We have the bullish inverted head and shoulders pattern (blue). The index is above all of the major indices, and with the 50 EMA now above the 200-day EMA, we can even call this a bull market.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Add to that a huge bullish cup and handle formation (red) and if we see a breakout above the October highs, we could really have something big going on. So why am I getting so concerned?
The indicators are looking terrible. I have shown this chart at least 3 times in the last week or so and that's because it's hitting extremes that don't look so great. The smart money is positioned for a bearish move in stocks, while the dumb money is very bullish. At these extremes the market doesn't usually perform very well for any length of time.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The smart money on the smart money / dumb money confidence indicator at Sentimentrader.com is the furthest below the dumb money since last summer. When we start seeing 40 or lower in the smart money, and 60 or above in the dumb, we usually start to see the market run into trouble. It can get much wider but at 40/60 it will get my attention.
Chart provided courtesy of www.sentimentrader.com
The yields on the 10-year T-note has been struggling at resistance and the 2.0% level. Sitting below 2.0% tells me that the credit markets are still not overly bullish on stocks, despite the decent economic indicators we have been seeing.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If that 1.9% level gives way, it could be a sign of trouble for stocks. Keep an eye on 1.9% and 2.0% whichever one breaks, the stock market will likely follow in the same direction.
In the past I have missed good rallies when the indicators were telling me to sell while the market kept going up. As RevShark likes to say, things can go up or down, a lot longer than would seem reasonable. When that 50-day EMA is above the 200-day EMA I would rather err on the side of being too bullish than bearish, so I guess I will watch and wait for the chart to weaken before doing any selling, despite my instinctive desire to flee.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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If I recall, the Investor Intelligence survey is supposed to be made up of newsletter writers (like myself) and they are not considered the smart money at extreme levels of bullishness or bearishness.
