01/05/12
Stocks opened lower on Wednesday but the Dow and S&P 500 managed to climb back into positive territory by the close. Support seems to be holding on as we head into the important jobs report on Friday. The Dow gained 21-points.
For the TSP, the C-fund added 0.04% yesterday, the S-fund lost 0.40%, the I-fund fell 0.47%, and the F-fund (bonds) lost 0.07%.
A quick glimpse of this chart of the S&P and I see enough to be bullish but there are some signs of fatigue out there.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
About a month ago I posted a link to a stock selection webinar done by our Premium Service provider RevShark, and one thing I noticed about him when he went over dozens of charts of the major stock indices, ETFs and individual stocks; Other than the major moving averages, he didn't look at any indicators. It was chart patterns and those moving averages. A chart either looked healthy to him, or it needed more work.
When I look at the S&P 500 chart above, and the two market leaders below, I see decent chart formations and the moving averages are all showing positive developments.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow Transportation Index has made intraday highs in 2012 and the 50-day EMA moved above the 200-day EMA. We can also see a very clear bullish inverted head and shoulders pattern, so what's not to like?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
That doesn't mean we can't see some backing and filling or sideways action to work off some of the overbought conditions. We just have to keep an eye on the support of trend lines and the moving averages.
I have been posting the chart of the dollar in the form of the ETF UUP lately (see yesterday's commentary) and it showed the recent rising trading channel as breaking down.
The same trading channel (red) on the chart of the dollar itself has not broken although the steeper trading channel (blue) has broken. The red channel may be the key to a continued rally in the stock market. If it breaks, stocks should continue to rally.
The MACD indicator along the bottom shows that we are seeing a negative divergence in the dollar where the indicator is dropping while the dollar trend was rising. We saw a similar divergence in the fall that preceded a sharp decline after peaking in early October.
SentimenTrader.com tells us that when the first two trading days of a new year were positive, the next two weeks were positive just 42% of the time. That includes only 1 time out of the past 9, dating back to 1981.
The S&P 500's upside over the next two weeks was capped at an average of +1.0% while its downside averaged -3.5%. Only 1 of those last 9 instances managed to gain more than +1.7% over the next two weeks (1987), while all but 2 lost more than -1.4% at its worst point.
So, the holiday hoopla may have run its course, but the charts tell us that any pullback may be benign, as long as support holds.
Administrative Note: Intrepid Timer has posted a free Year End Report for anyone interested. It basically sums up his first year as a premium service and talks about what subscribers might expect in 2012.
He is also currently offering a $150 annual subscription (38% savings off of a month to month subscription) for a limited time. He also only accepts a limited number of annual subscriptions and he's already more than 80% to that limit. After that only month to month subscriptions will be available. Premium Services
TSP Info: Internal Revenue Code (IRC) 2012 contribution limits
In 2012, you may contribute up to $17,000 in tax-deferred money to the TSP. If you are a member of the uniformed services, you may contribute a total of $50,000 in tax-deferred and tax-exempt money. If you will be age 50 or older during 2012, you may also contribute up to $5,500 in additional “catch-up” contributions if you expect to reach the $17,000 limit in 2012.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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