Sentiment drops

4/20/12

Stocks had a hard time finding direction early yesterday but things came tumbling down just after noon ET. A late rally helped the indices from closing at their lows, and the Dow ended the day with a loss of 69-points.

For the TSP, the C-fund was down 0.59% yesterday, the S-fund lost 0.31%, the I-fund fell 0.39%, and the F-fund (bonds) gained 0.09%.

The rising support line on the S&P 500 is doing a fine job of holding, but the bulls can't seem to get the index to hang onto any gains when it tries to rally off of the support. Despite the sharp intraday decline, the 50-day EMA and the 2011 high were able to hold again.

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

I'm now seeing bear flags in my sleep. It looks like a chart just begging the fall, but we have seen bear flags break to the upside. It's not common, but it happens. The recent bearish sentiment may be what helps.

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

The Russell 2000 is also forming a bear flag and because it is trading below the 50-day EMA, I'm not as excited about its prospects. But the small caps will likely move in the same direction as the S&P 500 and the market leaders (Nasdaq and Transports), and they look better.

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

Bonds have surprised me. I had thought we could stick a fork in the bond market as it looked like it was topping out just a couple of weeks ago, but ever since the weak jobs report on April 6, investors seem to be content heading back into bonds.

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

The weaker than expected initial jobless claims report on Thursday helped the bond market again and was also likely a catalyst for the drop in stocks.

Whether this is a fake-out - breakout for the TLT (20 year bond ETF) remains to be seen. Remember yesterday I talked about how market tops take time - rise fall, make news highs, fail, etc.? Well, that may be what we are seeing here in bonds.

A quick turnaround in sentiment pushed the TSP Talk Sentiment Survey System back to buy signal after a 1-week sell signal. The results came in at 40% bulls, 45% bears, for a bulls to bears ratio of 0.82 to 1. The system will move back to a 100% S fund allocation for the week of 4/23/12 - 4/27/12.

Thanks for reading! Have a great weekend!

Tom Crowley


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[Sensei]

Just a thought that as the 20 day EMA bears down on the 50 day, this bear flag could become wedge-ish in fashion. Would this be considered a "bearish wedge" with a similar projected outcome as a "bear flag"? I need to sharpen up the lingo.

 

[tsptalk]

yes. A rising wedge is bearish too. They tend to break in the opposite direction of the direction the wedge is pointing.

 

[uscfanhawaii]

Tom, I know you get the seasonality chart from SentimentTrader, but do you know if they or anyone else has looked at seasonality during Presidential Election years? I have heard that the markets tend to go up in these years, but don't know if seasonality is different. Wondering if fewer go away in May, or just that the Nov/Dec months are more positive.

 

[tsptalk]

usc -

sentimentrader does not provide that info. DecisionPoint posts a 4-year presidential cycle but it is a series of over 20 4-year charts and would be tough to post. I'll bet we can find something online. I'll try to post something.