12/08/11
The market is reacting to every headline and rumor coming out of Europe as we saw several swings during the day yesterday. A late bailout rumor shot the Dow up to a 100-plus point gain late in the afternoon, only to see that gain more than cut in half after it went unconfirmed. By the close, the Dow held onto a 46-point gain.
For the TSP, the C-fund gained gained 0.23% yesterday, the S-fund lost 0.12%, the I-fund was up 0.40%, and the F-fund (bonds) gained 0.31%.
The fact that the indices are so easily moved on these rumors tells us that investors just want some answers so they know what to do. There is a hunger for some positive news so those who may be underinvested can feel better about doing some buying.
Today and tomorrow there are very important meetings in Europe and I heard one trader on CNBC say that he would not want to be caught short (betting against the market) these 2 days because they will do everything possible to put a good spin on the debt issues in those meetings. That may be true, but with such optimism, it sounds like there is some room for disappointment.
The sideways action after the big 3-day rally in late November is healthy and as I have been saying, reminds me of the action after the early October rally. While we have some indicators that are bullish, and others showing concern, the main thing I am looking at is whether the support levels and the moving averages hold. The EMA's are now all crowded between 1222-1234 so the S&P 500 has about a 2% to 3% cushion. As I mentioned on Tuesday, I did some (not all) selling earlier this week, but if we see that kind of pullback, I would probably pull the trigger by getting back in the stock funds for a seasonally strong end of the year run.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq pulled back early yesterday but found support at the 200-day EMA and although it closed down fractionally, closed well off of the lows. You can see how tight the 20, 50, and 200-day EMA's are packed together so again, this is a support level that we'd look to hold. But those big open gaps are still quite glaring as potential downside targets at some point.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Despite stocks holding up well this week, the yield on the 10-year T-note fell back down toward 2.0%, a level that might indicate that bond traders are concerned with the stock market.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The bounce from below 1.9% to 2.16%, which nearly filled the open gap, could be reason enough for a pullback, but if it goes below 2.0% again that will get my attention. That would be a bearish sign for stocks.
Look for more wild swings the rest of the week as the meetings in Europe leak information. Many are expecting good news, but if there is a "buy the rumor, sell the news" reaction, I will be ready to be a buyer again as long as support is holding.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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