5/14/12
Stocks acted somewhat predictably on Friday as we expected the weak open after the negative JP Morgan Chase news late Thursday. But we also thought, based on the indicators, that buyers could step up, which they did. But with Europe becoming a major catalyst on the market, the buyers dried up as we headed toward the pre-weekend close. The Dow closed down 34-points.
[TABLE="align: center"]
[TR]
[TD]
[TD="align: center"] Daily TSP Funds Return
[TABLE="align: center"]
[TR]
[TD="align: right"] C-fund:
[/TD]
[TD] - 0.33%
[/TD]
[/TR]
[TR]
[TD="align: right"] S-fund:
[/TD]
[TD] - 0.04%
[/TD]
[/TR]
[TR]
[TD="align: right"] I-fund:
[/TD]
[TD] - 0.09%
[/TD]
[/TR]
[TR]
[TD="align: right"] F-fund:
[/TD]
[TD] +0.11%
[/TD]
[/TR]
[TR]
[TD="align: right"] G-Fund:
[/TD]
[TD] +0.004%
[/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
For the weekly and monthly TSP returns, please see our recent TSP Weekly Wrap-Up.
As I mentioned in that Wrap Up, the indicators look pretty bullish, but the chart is really questionable. We've had many warning signs including the S&P 500 moving below both the 50-day EMA and the longer-term rising support line, plus the April lows have been broken.
In the short-term, sometimes the 20-day EMA coming down to the 50-day EMA triggers an oversold bounce.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We have been watching this very bearish looking head and shoulders pattern break down. That neckline area, which coincides with the 50-day EMA, may be difficult to recapture on any rebound.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The head and shoulders is forming a classic test of the head failure followed by a break down.
Here's the better news: The investor sentiment is getting so bearish, that the bears may be running out of ammunition.
The 10-day moving averages of the Equity and CBOE put/call ratios, both considered the "dumb money" are at their lowest levels of the year, and looking back at prior times we saw readings this low, the indices usually found some support.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The recent AAII Investor Sentiment Survey had a bulls to bears ratio of 0.60 to 1. It hasn't been that bearish since last September, and as you can see, readings of 0.60 or lower over the years, tends to precede market rallies.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Our TSP Talk Sentiment Survey came in at 41% bulls, 51% bears, for a bulls to bears ratio of 0.80 to 1. That's not quite as bearish as the above survey, but it is still a buy signal in a bull market.
The futures were down last I checked (Sunday night) but barring any major news event, I can see a bounce some time this week. Whether an oversold bounce can recapture that neckline on the S&P 500 may be the clue as to whether this was a pullback to buy, or if it is a prelude to a real correction.
Thanks for reading! We'll see you tomorrow.
Tom Crowley
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.
