7/02/12
Stocks rallied sharply on Friday as we had yet another wave of optimism out of Europe - if you can believe that. The Dow gained a hefty 278-points to end the 2nd quarter, and now the market heads into some positive holiday seasonality.
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[TR]
[TD]
[TD="align: center"] Daily TSP Funds Return
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[TD="align: right"] G-Fund:
[/TD]
[TD] +0.01%
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[TD="align: right"] F-fund:
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[TD] - 0.23%
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[TR]
[TD="align: right"] C-fund:
[/TD]
[TD] +2.50%
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[/TR]
[TR]
[TD="align: right"] S-fund:
[/TD]
[TD] +2.82%
[/TD]
[/TR]
[TR]
[TD="align: right"] I-fund:
[/TD]
[TD] +3.62%
[/TD]
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[/TR]
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Here are the final returns for June.
I am never comfortable with emotional rallies and the recent news out of Europe sounds a lot like news we've heard before, only to be eventually let down. Plus it was the end of the 2nd quarter so some window dressing was probably at work as well.
The good news is, the first week of July is historically pretty strong, but this market seems to be at the mercy of the headlines so we'll have to keep an eye on them, and this week ends with a big one - the June jobs report.
Technically, the move up Friday was very positive as the S&P 500 moved above the 50-day EMA and some key resistance levels, but it will have to hold onto all of those gains early this week or the technical picture will quickly turn to neutral or even negative.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The inverted head and shoulders pattern seems to be taking this route...
... although the pullback went all the way down to the 200-day EMA instead of the neckline.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The new apex, or triangle formation, broke to the upside, but we have seen many times over the years where an apex breaks in one direction, only to fail and head back and break in the other.
The dollar had its worst one day performance since last October on Friday, which helped stocks have one of the biggest days of the year. As we know, stocks have had a tendency to move in the opposite direction of the dollar over the last several years. Looking at the last 6-months you can see it has been a consistent negative correlation pattern.
According to sentimenTrader.com, after a one day sell-off in the dollar like we had on Friday, after having been so close to recent highs, the dollar tends to struggle for up to three months.
Chart provided courtesy of www.sentimentrader.com
Two months later, the dollar was positive only 25% of the time, with an average return of -1.6%.
If this trend holds, it could be a positive sign for stocks over the next several weeks since stocks should move counter to the dollar.
With Wednesday being Independence Day, this will be a shortened holiday week ending on Friday with the June jobs report. Early estimates are looking for a gain of 100,000 jobs and an unemployment rate of 8.2%.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.html
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