10/07/11
It was another big day for the stock market yesterday as the rally following Tuesday's reversal continued. The Dow gained another 183-points and the S&P 500 is now 8.4% above Tuesday's low.
For the TSP, the C-fund gained 1.84% yesterday, the S-fund was up 2.55%, the I-fund jumped 2.86%, and the F-fund (bonds) lost 0.22%.
8.4% is quite a run for the S&P but the index is now closing in on some serious resistance. We have the 50-day EMA at 1189, and both the descending trendline and the bottom of the bear flag, are near the 1175 area.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As I mentioned on Wednesday, the market was due for a relief rally after the reversal on Tuesday, and the dollar had risen up to resistance and was due for a possible pullback, which would help stocks. It made sense and worked out out the way we thought. Now the dollar has pulled back and should test support today.
This was the chart we posted on Wednesday.
And here is the dollar (in the form of the UUP ETF) and you can see that it is now testing that support.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Should the dollar rebound off of support, stocks will have to deal with a little wind in their face.
The NYSE overbought / oversold indicator is back in overbought territory, but just modestly. In a bear market, overbought conditions don't generally last too long. It looks like there is a little wiggle room for a rally today, but after that, it will be more wind in the face of stocks.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
There is a bit of a twist in the options data but it is not a good sign for stocks, at least in the short-term. CBOE options traders are part of the "dumb money" and when they are bearish it is generally a bullish sign for stocks - except in the current situation, which may be too small of a sample to even consider. According to sentimenTrader.com:
"Options traders don't seem to be buying into the rally. Despite at least +1% gains in the S&P 500 each of the past 3 days, there have been more puts than calls traded on the Chicago Board Options Exchange.
"This has only happened twice before, on 8/8/07 and 9/15/11. Curiously, both times the S&P lost at least -6% during the next week."
We have some ominous signs out there, but I can't deny that the recent action has been very impressive and has the make up of a market bottom. The big reversal on high volume, and the subsequent rally looks like a successful test of the August lows, and could mark an intermediate-term low.
BUT (big but) the chart formations and indicators are telling us otherwise. The large bear flag on the chart of the S&P 500 is not a good sign for the short to intermediate-term. It has a downside target of about 1020.
Since we are in a bear market, I have to lean on the side of selling this rally as I said I would. I also said it will be hard to sell because bear market rallies are so impressive and can suck us into wanting more. But we get the jobs report today and if we can move higher again, we may be getting one more good opportunity to sell this rally.
The TSP Talk Sentiment Survey came in at 44% bulls, 44% bears, for a bulls to bears ratio of 1.0 to 1. That is a sell signal a bear market which means the system will move to 100% G-fund for next week. This adds to the negative against the market.
Reminder: The stock market is open for trading on Monday but we won't be able to do any interfund transfers that day, as the TSP will not be posting share prices because of the Columbus Day holiday.
Any transaction made before noon ET on Friday will be effective close of business on Friday.
Any transaction made after noon ET on Friday will be effective close of business on Tuesday - not Monday.
Thanks for reading! Have a great weekend!
Tom Crowley
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