09/15/11
Despite weak economic data, stocks rallied for a 4th consecutive day yesterday on the heals of more optimism out of Europe. By the close the Dow was up 186-points and is now looking for a 5th straight positive day - something it has not done since June.
For the TSP, the C-fund was up another 1.74% yesterday, the S-fund gained 1.33%, the I-fund jumped 2.41%, and the F-fund (bonds) lost 0.20%.
Volume hasn't been overly impressive but the indices are rallying strongly on the news out of Europe. At least that is the assumption since the economic data continues to be weak. If the market dropped on European concerns, than I suppose it is reasonable for it to rally if the default concerns are lessening.
The S&P 500 is still in a large bear flag but testing the top of the flag again is always a possibility. However, if it plans to do that, it will have to get through the 50-day EMA first. The first test of the 50 EMA failed, but the first one usually does. The question is, will a 2nd test make it through?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Looking back at the 2008 bear market, the last time that the 50-day EMA was below the 200-day EMA for any length of time, the S&P 500 made several attempts to move back above the 50-day EMA, and a couple did pop above it temporarily, but it took almost a year before the S&P moved above, and stayed above, the 50-day EMA. That was a couple of weeks after the bear market bottomed.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Looking at a weekly chart of the S&P 500 we can see that there is what I would call a very disturbing bear flag, similar to the daily chart, but the recent rally has moved the weekly chart above the 200-week simple moving average. This could be a very bullish sign should it hold for any length of time because as you can see, the 200-week SMA has acted as some pretty good support / resistance, depending on if the the S&P is trading above or below it.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The TSP Talk Sentiment Survey came in at 42% bulls, 43% bears, for a bulls to bears ratio of 0.98 to 1. That is close to a sell signal, but not quite. It is a neutral reading which means the system will remain 100% in the C-fund for next week.
One of the other sentiment surveys that I watch, the Investors Intelligence Advisory Sentiment Survey, came in with a bull to bear ratio of 0.87 to 1. That is the lowest (most bearish) ratio fpr that survey since about this time last year.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The bearish percentage was 41% and that is the highest bearish reading since the March 2009 bear market lows.
From SentimenTrader.com:
Chart provided courtesy of www.sentimentrader.com
I see that while the percentage of times positive over the next month was a fairly healthy 56%, the average return was just +0.4%. And after 3 months it was positive 63% of the time but the return was a very modest +1.4%. That leads me to believe that sometimes the downside has more to go, and it skews the return, but the bottom is usually close at hand time-wise.
While this recent rally seems to be triggered by some positive out of Europe, the overly bearish sentiment we are seeing is playing a role too. The questions are, can sentiment get more bearish (the charts say yes) and what happens if the news out of Europe gets less rosy again - which is probably inevitable?
Thanks for reading! Have a great weekend!
Despite weak economic data, stocks rallied for a 4th consecutive day yesterday on the heals of more optimism out of Europe. By the close the Dow was up 186-points and is now looking for a 5th straight positive day - something it has not done since June.
For the TSP, the C-fund was up another 1.74% yesterday, the S-fund gained 1.33%, the I-fund jumped 2.41%, and the F-fund (bonds) lost 0.20%.
Volume hasn't been overly impressive but the indices are rallying strongly on the news out of Europe. At least that is the assumption since the economic data continues to be weak. If the market dropped on European concerns, than I suppose it is reasonable for it to rally if the default concerns are lessening.
The S&P 500 is still in a large bear flag but testing the top of the flag again is always a possibility. However, if it plans to do that, it will have to get through the 50-day EMA first. The first test of the 50 EMA failed, but the first one usually does. The question is, will a 2nd test make it through?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Looking back at the 2008 bear market, the last time that the 50-day EMA was below the 200-day EMA for any length of time, the S&P 500 made several attempts to move back above the 50-day EMA, and a couple did pop above it temporarily, but it took almost a year before the S&P moved above, and stayed above, the 50-day EMA. That was a couple of weeks after the bear market bottomed.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Looking at a weekly chart of the S&P 500 we can see that there is what I would call a very disturbing bear flag, similar to the daily chart, but the recent rally has moved the weekly chart above the 200-week simple moving average. This could be a very bullish sign should it hold for any length of time because as you can see, the 200-week SMA has acted as some pretty good support / resistance, depending on if the the S&P is trading above or below it.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The TSP Talk Sentiment Survey came in at 42% bulls, 43% bears, for a bulls to bears ratio of 0.98 to 1. That is close to a sell signal, but not quite. It is a neutral reading which means the system will remain 100% in the C-fund for next week.
One of the other sentiment surveys that I watch, the Investors Intelligence Advisory Sentiment Survey, came in with a bull to bear ratio of 0.87 to 1. That is the lowest (most bearish) ratio fpr that survey since about this time last year.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The bearish percentage was 41% and that is the highest bearish reading since the March 2009 bear market lows.
From SentimenTrader.com:
Chart provided courtesy of www.sentimentrader.com
I see that while the percentage of times positive over the next month was a fairly healthy 56%, the average return was just +0.4%. And after 3 months it was positive 63% of the time but the return was a very modest +1.4%. That leads me to believe that sometimes the downside has more to go, and it skews the return, but the bottom is usually close at hand time-wise.
While this recent rally seems to be triggered by some positive out of Europe, the overly bearish sentiment we are seeing is playing a role too. The questions are, can sentiment get more bearish (the charts say yes) and what happens if the news out of Europe gets less rosy again - which is probably inevitable?
Thanks for reading! Have a great weekend!
Tom Crowley
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