12/10/12
Stocks were mixed again on Friday as the Dow has been performing well, while the weakness in Apple has been holding back the Nasdaq. The S&P 500 and small caps have been mostly flat lately. The Dow gained 81-points on Friday.
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[TD="align: center"] Daily TSP Funds Return[TABLE="width: 155"]
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[TD="align: right"] G-Fund:[/TD]
[TD="align: right"] 0.0036%[/TD]
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[TD="align: right"] F-fund:[/TD]
[TD="align: right"] -0.10%[/TD]
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[TD="align: right"] C-fund:[/TD]
[TD="align: right"] 0.36%[/TD]
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[TD="align: right"] S-fund:[/TD]
[TD="align: right"] 0.28%[/TD]
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[TD="align: right"] I-fund:[/TD]
[TD="align: right"] 0.22%[/TD]
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The jobs report, while not spectacular, did beat estimates and we saw a very nice gain in the Dow, but the other major indices didn't react quite as positively and have been rather dull of late.
While I am not very confident that Washington will be able to solve their disputes over the fiscal cliff in a timely manner, the charts are certainly trying to tell us that they expect a positive outcome. perhaps they are prepping for a Santa Claus rally.
The S&P 500 has created both a bullish inverted head and shoulders pattern, and a bull flag - while trading above the 20, 50, and 200-day EMA's. This is a tough chart to bet against, despite some stiff resistance overhead near 1425. A breakout from the inverted H&S pattern would give the S&P an upside target near 1550, or about 9% from current levels.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq chart looks OK, but has been lagging because of the weakness in Apple's stock. It is still below the 50-day EMA but the inverted H&S is a plus here as well.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Small caps look very good with their inverted H&S and bull flag patterns. The action has been very dull since Thanksgiving as the small caps have traded in a very tight trading range. The old adage says to never short (bet against) a dull market and this is not a chart I would want to bet against.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Small caps have a tendency to outperform in December and January so, if it wasn't for the fiscal cliff, I would be very aggressive here.
Over the last several months, the Dow Transportation Index moved up to the the top of its trading range, then reversed direction and moved quickly to the downside. So, I am a little encouraged that the recent peak near 5150 is being tested again, rather than seeing it head straight down from the late November high.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
5150 is the current obstacle but then it has to deal with that long term resistance near 5200.
The dollar has bounced back some in the last few days and we are seeing a little bit less of an inverse correlation between the dollar and stocks lately. There are two gaps still open above, but the UUP will have to get back above the 50-day EMA to get them filled.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The TSP Talk Sentiment Survey came in at 42% bulls, 46% bears, for a bulls to bears ratio of 0.91 to 1. That is a buy signal which means the system will remain in a 100% S fund allocation this week.
I love the what I see in the charts, but seasonality is not on the side of stocks this week. Also, from what I understand, congress is off today so that leaves only 4 more days before they leave for their holiday break - if they are so bold to do so without a deal. Should they leave town without a deal, it could shake things up on Wall Street. Of course if they do make a deal this week, we probably don't want to miss out on a potentially strong rally... or will we get a sell the news reaction? It's confusing, but as I said, the charts are anticipating a positive outcome.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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