09/08/11
The big reversal on Tuesday saw some strong follow-through yesterday as the Dow added another 275-points for a gain of nearly 500-points from Tuesday's low to Wednesday's close.
This follow-through is typical behavior after a reversal day but the market swings have been wider than usual, which is also typical during bear markets, or when a market is is ready to reverse. Being officially in a bear market we might expect the outcome to be bearish, at least until we see some of the technical indications improve. The S&P 500 closing above the 20-day EMA yesterday is a positive notch on that technical picture, but there is a lot more work to be done.
For the TSP, the C-fund was up 2.89% yesterday, the S-fund jumped 3.92%, the I-fund gained 3.05%, and the F-fund (bonds) lost 0.20%.
As mentioned, the S&P did close above the 20-day EMA and the 50-day EMA is about 30-points above yesterday's close. The bear flag is still very much intact and a move back up to the top of the flag is a possibility, but it would surprise me. I still think a test of the lows is in the cards, however, I am willing to give up that theory if the S&P breaks above the 50-day EMA and the top of the bear flag. Of course the 200-day EMA is just above that so I would probably have to see that get taken out as well to give up the thoughts of seeing a "test" between 1100 and 1120.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq has seen a series of gaps being created on the chart recently. There have been 4 in the last 2 plus weeks, and as we might expect, they are getting filled relatively quickly. Gaps tend to get filled sooner, rather than later, although not always.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The first gap on August 20th closed in 7 days. The second took 5 days. The third closed in 3 days. Yesterday's open created yet another gap and it is still open down to 2478. Given the recent volatility, I would be surprised if this doesn't get filled in a matter of days.
The Dow Transportation Index rallied 3.4% yesterday and will be running into resistance today with the 20-day EMA about 1.5% above yesterday's close, plus there is a weak short-term descending trendline that should not be too tough to take out if the market wants to continue to rally.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The the German Supreme Court ruling did allow the Greece bailouts and the European market responded positively with the German DAX jumping 4% on Wednesday. Despite this obstacle being pushed aside, the trouble in Europe is still very real and I believe our market will have to continue to deal with the ramifications of their debt problems.
President Obama addresses the nation tonight on the dismal jobs situation. The market seems to be heading into this speech with optimism that something may be said to trigger growth. The question is, will we see a "buy the rumor, sell the news" reaction, or will any proposed solutions have the meat that the markets are looking to sink their teeth into?
Thanks for reading! We'll see you back here tomorrow!
Tom Crowley
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