2/16/12
Stocks opened rather flat after the overnight futures looked much stronger. The buying dried up and we saw some meaningful selling as the Dow closed down 97-points.
For the TSP, the C-fund was down 0.51% yesterday, the S-fund lost 0.46%, the I-fund gained 0.74%, and the F-fund (bonds) added 0.01%.
I want to revisit the inverted / inverse head and shoulders pattern that we dwelled on for several weeks at the end of 2011. As a reminder, this is basically the form that an inverted H&S takes...
... and this example shows one of the more common outcomes of a bullish inverted H&S, which is a breakout above the neckline, followed by a future test of the neckline, that should hold as support before the upside resumes.
The Dow Transportation Index, the market leader, has a very clear inverted H&S and the recent pullback, which tested the 50-day EMA yesterday, is very close to testing its neckline.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The S&P 500 chart is closer to the top of the breakout and may have more room to pullback, assuming it follows the leadership of the Transports.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The PMO indicator just moved below its 10-day moving average, which is a sell signal for that indicator.
Just a follow up on the string of tight daily highs: Despite closing at 1343, the high on the S&P 500 yesterday was 1356, which was the highest intraday level since July 7. The previous 6 daily highs have been 1351, 1354, 1351, 1353, 1352 and 1351. That's 7 consecutive daily highs within a 5-point range, and I would call that a "flat top."
These flat top formations do tend to break to the downside, and while there are always exceptions, it would not have been overly surprising to see this one break the tendency since the market has been so string. But yesterday's action seems to be indicating that the long awaited pullback could be upon us. Many of our indicators had us expecting a pullback for quite sometime now, so there are a lot of bear out there that will welcome this pullback with open arms.
The problem is, when everyone expects a pullback, and many are looking to buy a pullback, we don't always get what we want. Don't blink or you could miss it.
Thanks for reading! We'll see you tomorrow.
Tom Crowley
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