09/27/11
It was a very interesting day for stocks on Monday. While many of us were expecting a capitulation type-sell off that could trigger a bottoming rally, the market instead held rather steady until we got a fluky, strong, news driven afternoon rally.
Although the Dow held up most of the day, the Nasdaq and small caps struggled early trading deep in the red most of the morning, but were taken up with the rest of the market during the afternoon surge. The late surge was triggered by what RevShark called in his Afternoon Commentary yesterday, another "Greece is saved again" rally. The Dow gained 273-points.
For the TSP, the C-fund rallied 2.34% yesterday, the S-fund gained 1.88%, the I-fund was up 1.66%, and the F-fund (bonds) lost another 0.40%.
This Greece debacle has been going on for about a year and a half now and it is amazing how our markets, and our TSP accounts, continue to be at the mercy of this mess. Apparently a new plan was discussed in Europe, that will save the world. I wonder what today's headlines will be?
The rally didn't do too much to change the technical picture. A head and shoulders breakdown does tend to have a rally come back and test the neckline, which is also the bottom of the bear flag. That bounce is usually on lighter volume than the volume on the break down, and it was, and the rally tends to fail near the neckline. If the S&P can mange to move above those levels (~ 1175 to 1180) then the analysis may have to be rethought.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
While the Dow gained 2.5%, and the S&P picked up 2.3%, the normal #2 market leader (the Nasdaq - #2 after the Transports) managed a 1.3% gain so that is a little bit of a yellow flag.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The open gap is nearly filled but after that, the resistance gets thick. With the Nasdaq closing at 2517 yesterday, the open gap is near 2337, while the 20-day EMA is at 2533, and of the course the rising bear flag resistance is a moving target.
The yield of the 10-year T-note filled an open gap with yesterday's rally (when yields are up, bond prices and the F-fund are down) but there is still another gap open up near 2.06% - just above the 20-day EMA.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
To me this appears to be setting up for a little follow-through to the upside for stocks and possibly bond yields, but there is enough resistance overhead for me to not trust this rally yet. If we could have just gotten the wash-out sell off yesterday morning first, before the big rally, I would likely be a lot more bullish than I am now. Instead, I'm skeptical. The question is, do we need to see a wash-out first?
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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