5/11/12
Stocks were mixed yesterday as the Dow and S&P 500 closed slightly higher, and the Nasdaq and Dow Transports closed lower. The fireworks came after the close on Thursday as JP Morgan Chase reported a $2 billion dollar trading loss.
[TABLE="align: center"]
[TR]
[TD]
[TD="align: center"] Daily TSP Funds Return
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[TR]
[TD="align: right"] C-fund:
[/TD]
[TD] +0.28%
[/TD]
[/TR]
[TR]
[TD="align: right"] S-fund:
[/TD]
[TD] +0.31%
[/TD]
[/TR]
[TR]
[TD="align: right"] I-fund:
[/TD]
[TD] +0.51%
[/TD]
[/TR]
[TR]
[TD="align: right"] F-fund:
[/TD]
[TD] - 0.06%
[/TD]
[/TR]
[TR]
[TD="align: right"] G-Fund:
[/TD]
[TD] +0.004%
[/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
After hours, the financial stocks were taking a beating and the index futures moved sharply lower. In an article at TheStreet.com I read, "From a big picture standpoint, this is a spectacular piece of bad news coming at a time when the broad market's trend is clearly negative so it may be wise to look out below."
There are many indications that this market may be ready for a nice relief rally, but it may have to get a little ugly first. I wouldn't be surprised if we saw another big positive reversal day today, but then again with Europe still in the headlines, investors may not be too eager to buy before the weekend.
The S&P 500 held support but yesterday's action did little to help the technical situation. I am still watching the head and shoulders pattern, which depending how you look at it, may have broken down already after failing at the middle of the head test on May 1.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
That 1375 area will be tough to get back over as it is about where the neckline will meet the 20 and 50-day EMA's in the next couple of days. At this moment on Thursday night, the S&P 500 futures are down flirting with the blue support line.
The market leading Dow Transportation Index had created an inverted head and shoulders pattern. It is now testing its head and is at some important support. However, it looks like it wants to move down to test the 200-day EMA, and with the futures down, that seems likely today.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I had mentioned that the indicators are showing some positive signs. The put / call options show that the "dumb money" (in blue below) is as bearish as it has been since 2011. Going back the middle of 2011, each time the 10-day moving average of the Equity put / call ratio moved down near 0.75 to 1, the market seemed to find its footing and move higher.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The smart money of the OEX put / call ratio (green) is also quite bearish, and that is not usually a good sign for stocks, but when both the smart and dumb money get bearish, it seems to be a bullish sign for stocks.
It wasn't extreme for the dumb money, but in March of this year, both the smart and dumb money were heading lower and once the smart money hit the 1.75 level, we saw a sharp, albeit short rally higher.
The TSP Talk Sentiment Survey came in at 41% bulls, 51% bears, for a bulls to bears ratio of 0.80 to 1. That is a buy signal which means the system will remain 100% S fund for next week.
This market is due for a bounce, but the technical picture puts it in a dangerous position. This is where your risk tolerance kicks in. There's a good chance we could rebound and those who have a high tolerance for risk may want to take a chance here. Those who are more risk averse may want to wait for the smoke to clear rather than trying to pick a bottom.
Thanks for reading! Have a great weekend!
Tom Crowley
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