01/06/12
For the second day in a row, stocks opened lower but managed to recover the losses by the close. The Dow was down 3-points on the day, but the S&P 500, Nasdaq, and small caps were all higher.
For the TSP, the C-fund was up 0.29% yesterday, the S-fund gained 0.80%, the I-fund fell 1.63%, and the F-fund (bonds) slipped 0.01%.
The news today is that for the first time in 5-months, the 50-day EMA moved above the 200-day EMA. This is not an instant buy signal in and of itself, but for my own personal analysis I consider the bear market over and a bull market beginning. I certainly don't ignore everything else based on this. I am just more apt to anticipate bullish results and err on the side of bullishness rather then defensiveness.
That said, the market is a little overbought and that happens when we see faster moving averages move above a slower one. But we've now had 2 days of consolidation and has helped take us off of any extreme overbought readings.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The chart of the small caps looks good so while we could see sideways to a slight pullback while we work off the overbought conditions, support looks strong here and it isn't very far away.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Our TSP Talk Sentiment Survey came in at 47% bulls, 39% bears for a bulls to bears ratio of 1.21 to 1. In a bear market that is a sell signal. But now that we have moved to our bull market rules with the 50 EMA moving above the 200-day EMA, 1.21 to 1 is just barely in buy signal territory.
Interestingly, the AAII Investor Sentiment Survey tells a completely different story as their survey, taken a day before our survey, came in at 49% bulls and only 17% bears for a ratio of 2.85 to 1. That is normally a pretty blatant sell signal.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
You can see above that going back to 2007 we saw some steep declines (this is a weekly chart) after the ratio went over 2 to 1, but late in 2010 we saw extreme bullish readings that didn't seem to have any immediate negative impact on the market. In fact the market rallied for months after those high ratios in late 2010 - 2011.
The yield on the 10-year T-Note is flirting with 2% again, and again it has to deal with the 50-day EMA and a descending trendline.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If we are going to see a sustained rally in the stock market we should see this move above 2% again, but those two road blocks may be tough resistance to break without the help of some good positive economic news, and this morning's (Friday's) jobs report could be the catalyst of a breakout above, or breakdown below that resistance.
The problem, history tells us the that the market has a tendency to struggle after the January report.
Chart provided courtesy of www.sentimentrader.com
The estimates for the December jobs report is for a gain of 150,000 to 165,000 jobs and an unemployment rate of 8.7%.
Thanks for reading! Have a great weekend!
Tom Crowley
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