2/13/12
Stocks finally saw a modest pullback on Friday, although we still have not had a 1% daily decline this year. The 0.7% loss in the Dow and S&P 500 was well off of the lows, and those lows tested the rising support. Now what?
For the TSP, the C-fund was down 0.67% on Friday, the S-fund fell 1.09%, the I-fund dropped 1.53%, and the F-fund (bonds) was up 0.23%.
For the weekly and monthly TSP returns, please see our recent TSP Weekly Wrap-Up.
The S&P 500 had been down 1% in early Friday trading, and again later in the afternoon, but we saw the rising support line hold as buyers stepped in the during last our of trading.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We all know that this rally has gone on for quite a while and is due for a pullback, and we are now seeing some breakdowns, with one coming from the market leader, Dow Transportation Index.
The 20-day EMA and the rising support line have been broken on this leading index, and we do see the start of what looks like rounded top. The S&P 500 has not done this yet so it's not a done deal, but when the leader speaks, we need to take notice.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
When the S&P 500 makes a 5-day low after a 6-month high - while sentiment is bullish, the next 3 to 4 weeks (19 days) tend to be weak. This could mean that the long awaited pullback could be upon us, but after 19 days things tend to get better, which probably means we should embrace the pullback as an opportunity.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
The catch here is that these stats are only true when investor sentiment is bullish. In sentimenTrader.com's case they are looking for when their AIM model, a sentiment indicator, is greater than 60% and it is currently 70%, so this seems to qualify as one of those times. But I am still skeptical of the bullishness out there as we have not seen that around here.
Our Sentiment Survey came in at 49% bulls and 42% bears for a ratio of 1.17 to 1, for a bulls to bears ratio of 1.17 to 1. Too much bullishness in a bull market would be marked by a ratio closer to 2.0 to 1. The current 1.17 ratio is yet another fresh buy signal in a bull market which means the system will remain 100% S Fund for this week.
Either we have become the smart money, where low bullish numbers actual mean the market will go lower, or investors are either still not trusting this rally, or too many of us are expecting a pullback, and we know that the market loves to make the most people wrong that it can.
I see the futures are up (Sunday night) on more news out of Greece. Their on again, off again bailout / austerity measures appear to have won approval.
Thanks for reading! We'll see you tomorrow.
Tom Crowley
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