04/12/13
The Dow gained another 63-points on Thursday making it four days in a row of gains.
[TABLE="align: center"]
[TR]
[TD]
[TD="align: center"]
Daily TSP Funds Return[TABLE="width: 164"]
[TR]
[TD="align: right"] G-Fund:
[/TD]
[TD="align: right"] +0.0036%
[/TD]
[/TR]
[TR]
[TD="align: right"] F-fund:
[/TD]
[TD="align: right"] +0.07%
[/TD]
[/TR]
[TR]
[TD="align: right"] C-fund:
[/TD]
[TD="align: right"] +0.36%
[/TD]
[/TR]
[TR]
[TD="align: right"] S-fund:
[/TD]
[TD="align: right"] +0.39%
[/TD]
[/TR]
[TR]
[TD="align: right"] I-fund:
[/TD]
[TD="align: right"] +1.27%
[/TD]
[/TR]
[/TABLE]
[TABLE="align: center"]
[TR]
[TD="align: right"]
[/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The S&P 500, in the form of the SPY, rallied up to the upper end of its rising trading channel, but backed off a bit after hitting it.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The longer-term chart is still on the rise and is now back above the top of the trading channel making it extended. Sometimes these strong moves that break above the areas that are already at extreme levels, tend to be exhaustive moves. We saw one before the correction last fall.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The trouble is, many investors are expecting a decline, and that tends to keep the stock indices buoyant.
The TSP Talk Sentiment Survey came in at 49% bullish, 40% bearish for a 1.23 to bulls to bears ratio. While nowhere near as bearish as last week, this 1.23 to 1 ratio is bearish enough in a bull market to be bullish for stocks. Why are investors not very bullish while we are seeing all-time highs. Not what you'd expect.
So maybe it's just TSP Talkers who aren't trusting this rally? Nope. This week's AAII survey was so extreme, the folks at sentimenTrader.com gave a caution to not trust the numbers thinking they could be a mistake and possibly be revised. This survey is taken a day or two before our survey so it was probably before the last 2 day's nearly 200-point rally in the Dow, but check out these numbers...
Despite new highs, only 19% of those surveyed said they were bullish. We haven't seen so few bulls since the depression-like market bottom in 2009. Does this make sense to anyone?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As I said, sentimentrader was skeptical of the results but went ahead with their typical great analysis...
Chart provided courtesy of www.sentimentrader.com
It's not a surprise that we see strong positive returns after such readings. That's what we'd expect since these surveys are contrarian indicators. But what is interesting is that the last two times we saw a 3-month low in bullish sentiment and 30-month new highs, both in 2012, the market was down for three months. Does that mean things are different now? Are people reacting differently when stocks are up trying to anticipate reversals? Possibly. So maybe it's time to rethink how we handle dumb money surveys?
All of the other occurrences came before the tremendous bear market of 2008, so perhaps investors are just not ready to get complacent when it comes to stocks, having been burned with 40% and 50% bear markets twice in the last 13 years?
I don't know for sure, but I am one of those who does not trust this rally and I am wondering if that is the sentiment that will just keep the rally going? The market sure seems to be waiting for us dumb money to capitulate and become more bullish and buy before it corrects.
The S&P 500 is at resistance now and extended. If it is going to pullback, now's the time.
Thanks for reading! Have a great weekend!
Tom Crowley
