01/11/12
Stocks opened sharply higher yesterday, but investors didn't do much after the opening surge as we had a slow deterioration into the close. Still we saw decent gains at the close, particularly in the small caps and international stocks, and the Dow finished up 70-points.
For the TSP, the C-fund gained 0.89% yesterday, the S-fund was up 1.33%, the I-fund jumped 1.72%, and the F-fund (bonds) ticked up 0.01%.
Technically, the S&P 500 chart looks good except I would have preferred to see a pullback to support before another move higher. We saw a 5-month intraday high yesterday and while a breakout is usually a good thing, I am seeing too much of a similarity to last year's inverted H&S breakout failure - right down to the negative divergence in the MACD.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
On the other hand, since the market has consolidated for quite some time - we are hitting levels we hit back in January of 2011 - we could see buyers step up and produce a rally that gives us very little in the way of buying opportunities, so this may be it.
That's just what happened in 2006 - 2007 when the S&P broke out in August of '06, it did not really give investors any significant pullbacks to buy until late February of 2007. Perhaps that is the type of breakout we will see this time?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Taking a look at the other major indices, the leading Dow Transportation Index has made a clean breakout above the inverted head and shoulders pattern. When the leader jumps, the followers shouldn't be too far behind.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq lagged during the last two months of 2011 so it is not at 5-month highs like the others, but it did move above some key resistance levels.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Small caps have also been impressive as they took out the neckline of the inverted H&S formation. Generally, once we get the breakout on the inverted H&S, the neckline should act as support on any pullback.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Martin Luther King Jr. Day doesn't have a long history and since it began in the late 90's, it hasn't given us much of a positive holiday bias. If anything next week has some issues that may be related to earnings and options week.
Chart provided courtesy of www.sentimentrader.com
Except for the copycat formations of the failed inverted H&S from 2010, I like the action in the charts. The indicators have come off their most extreme overbought levels but the put/call ratios we talked about yesterday are still a concern. I'm not totally convinced of this breakout but I am willing to bet on it until it proves otherwise.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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