S&P and 10-yr yields making new highs

3/11/13

Stocks rallied again after a better than expected jobs report on Friday. The Dow, which was up up 68-points, the S&P 500, and the Nasdaq, all made new 52-week highs.
[TABLE="width: 88%, align: center"]
[TR]
[TD]

[/TD]
[TD="align: center"]Daily TSP Funds Return[TABLE="width: 149"]
[TR]
[TD]G-Fund:[/TD]
[TD="align: right"]+0.0043%[/TD]
[/TR]
[TR]
[TD]F-fund:[/TD]
[TD="align: right"]-0.21%[/TD]
[/TR]
[TR]
[TD]C-fund:[/TD]
[TD="align: right"]+0.46%[/TD]
[/TR]
[TR]
[TD]S-fund:[/TD]
[TD="align: right"]+0.81%[/TD]
[/TR]
[TR]
[TD]I-fund:[/TD]
[TD="align: right"]+0.05%[/TD]
[/TR]
[/TABLE]
[TABLE="width: 80%, align: center"]
[TR]
[TD="align: right"]More returns [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The S&P 500 has been up 6 days in a row, and 8 or the last 9 since the February low. The trend is still up, but once again it is closer to resistance than support.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I have been showing this intermediate-term chart of the S&P 500 and all this time I have been using the early April 2012 peak to draw the upper resistance line (blue), and perhaps I am grasping at straws, but I noticed that if I used the May 1, 2012 high instead, it creates an exact parallel trading channel with the lower support line (red).

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Yes, maybe grasping at straws since I was pretty surprised that the intermediate term resistance line would not hold as resistance, but a parallel channel makes more sense as that would put the resistance line right about at 1550, where the S&P 500 is now.

I moved back a little further and noticed that the prior two rallies lasted 3.5 and 4 months before both gave way to a 2 month pullback. The current rally is now 3.5 months old.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Sentiment is still more bearish than would be expected in a market like this, and that is a big part of the reason why the rally has been able to persist. Apparently it takes 3.5 to 4 months before investors embrace a rally and finally become excessively bullish, and that's probably when we'll see a pullback. We just haven't gotten their yet.

This little tidbit from sentimenTrader.com shows what has happened in the past after the S&P 500 and the yield on the 10-year Treasury Note both hit 200-day highs as they did on Friday.

Chart provided courtesy of www.sentimentrader.com

It looks like the short-term shows better than average returns, but going out a month the weakness in stocks is pretty consistent.

Thanks for reading! We'll see you back here tomorrow.

Tom Crowley


Posted daily at TSP Talk Market Commentary

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

 

[JimmyJoe]

Thanks for the charts Tom. Now, SPX 1600 this week.

 

[tadgent]

I am new so this might be a dumb question, apologies. But this statement seems off "It looks like the short-term shows better than average returns, but going out a month the weakness in stocks is pretty consistent".

That seems inconsistent with the data presented, especially the median data, viewed at 3, 6, and 12 month later intervals. If anything, the data suggests buy and hold. Am I incorrect?

 

[tsptalk]

Hi tadgent -

Actually, the median return and percent of times positive is much lower after this 200-day high event, than when compared to random periods, once we get past the 2 week point.

By to your point, because the Dow is at new highs, almost every 12 year period average would be positive. The question is whether you want to withstand potential draw downs from corrections / bear markets, etc.

I hope that makes sense.

 

[dpmp]

Looks like there was a mild short covering within 15 minutes toward the close. Not sure what that means. I've been itching to get out but still trying to milk the last bit of the rally.

 

[dpmp]

Why do you put a rectangle box on the 1 month later column, Tom?

 

[tsptalk]

That's where the significant data is - where is strays from a random monthly returm