11/28/11
Last week the stock market suffered its worst Thanksgiving week since 1932. Every trend, tendency, seasonal bias, and extreme indicator reading was thrown out the window, and the market did what it wanted to do, which apparently was to go down.
The Dow lost 236-points on Wednesday and, after being up 104-points early, closed down 26-points in the abbreviated trading session on Friday.
For the TSP, the C-fund lost 0.26% on Friday, the S-fund fell 0.65%, the I-fund dropped 0.72%, and the F-fund (bonds) fell 0.34%.
For weekly and monthly TSP returns, please see our recent TSP Weekly Wrap-Up.
The market had a lot of positive things going for it as we went into Wednesday's trading. Going back to 1950, the S&P 500 had been up 76% of the time on the Wednesday prior to Thanksgiving Day, and 70% of the time on the Friday after. Those are two of the most positively biased days of the year, yet the Dow gave up 260+ points this year.
The market does have something going for it this week in that post holiday action tends to reverse pre-holiday action, and after being down for 7-consective days, even a dead cat would bounce here.
The S&P 500 gave us warning, teased us with some technical positive developments, then collapsed. We saw the 20, 50, and 200-day EMA's get taken out on one day a couple of weeks ago, and that was our first warning. That was also the day that the triangle formation broke down. I said, this could be a fake-out so let's see if the S&P can climb back into the triangle. Instead, we saw a sideways day. That was probably another warning - no snap back rally after a breakdown.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
By this time, the indicators were getting oversold and it seemed like we would be due for a bounce given the hugely positive bias surrounding Thanksgiving Day. Again, no such luck.
Now those of us who got stuck in this mess are in a situation where it is probably too late to sell (famous last words.) I've lost a lot of money over the years not selling when it was too late to sell, but I have also been burned many times by panic selling rather than holding on during an obvious rebound situation.
I think the only question here is whether we have a 2008 scenario where we would have to sell any bounce, or if a reversal will be the start of a decent Santa Claus rally to close out the year?
It's no surprise that the indicators are all suggesting that a rebound is overdue. Here is the NYSE overbought / oversold indicator pushing down near -1000...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The 10-day moving average of the ARMS Index hit an extreme and has actually shown signs of reversing...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The smart money of the OEX put/call ratio is back near the level that saw at the early October lows...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
One negative is that the normally bearish rising wedge on the chart of the dollar (actually the dollar ETF, UUP) broke to the upside, and a strong dollar would put some pressure on stocks. It won't kill a rally, but it will make it tougher.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Seasonally, the stronger parts of December are during the first week and the last two weeks, so perhaps any rally can take us through that first week in December. If only it were that easy to predict.
Chart provided courtesy of www.sentimentrader.com
The TSP Talk Sentiment Survey came in at 44% bulls, 49% bears, for a bulls to bears ratio of 0.90 to 1. That is a neutral reading in a bear market which means the system will remain 100% G Fund for the week of 11/28/11 - 12/04/11.
I am actually looking for a strong rally in the stock market at some point this week - whether it holds or not. We had weak pre-holiday action and that tends to reverse after the holiday, and we are certainly set up for an oversold relief rally.
Thanks for reading! We'll see you back here 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.
