Stocks continued their rebound yesterday with a scorching 3.4% gain in the S&P 500, while the small caps added an impressive 4%. The I-fund picked up 2.3%, lagging because of a gains in the dollar and probably the lag time of the overseas markets.
The rally has been quite strong, but the S&P 500 is not out of the woods. There is a pretty obvious wedge coming together, and that is typically bearish in a bear market, as they tend to break in the direction of the larger trend. If that's the case, than 900-920 would pose problems, although we have seen false breakouts in these wedges, and a break above 920 is possible, but could just be a precursor to a breakdown as we have seen before.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The other more bullish possibility is that the S&P 500 is forming a new ascending uptrend channel. If that's the case, we could see a move above the early January highs. Being that we are in a bear market, that to me is the long shot but I'm open to the possibility.
The NYSE overbought/oversold indicator is now over +500, which doesn't seem like much after the +1200 reading we had at the end of the Santa Claus rally. But +500 is quite overbought and has led to recent market peaks in the past year or so.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The very strong open for stocks yesterday was an odd occurrence on an FOMC day, although the rally was not due to the Fed, but rather the Bad Bank plan that is going to take all of our problems away (not).
Jason at SentimenTrader.com had this to say about the gap open on a scheduled FOMC announcement day:
The rally has been quite strong, but the S&P 500 is not out of the woods. There is a pretty obvious wedge coming together, and that is typically bearish in a bear market, as they tend to break in the direction of the larger trend. If that's the case, than 900-920 would pose problems, although we have seen false breakouts in these wedges, and a break above 920 is possible, but could just be a precursor to a breakdown as we have seen before.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The other more bullish possibility is that the S&P 500 is forming a new ascending uptrend channel. If that's the case, we could see a move above the early January highs. Being that we are in a bear market, that to me is the long shot but I'm open to the possibility.
The NYSE overbought/oversold indicator is now over +500, which doesn't seem like much after the +1200 reading we had at the end of the Santa Claus rally. But +500 is quite overbought and has led to recent market peaks in the past year or so.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The very strong open for stocks yesterday was an odd occurrence on an FOMC day, although the rally was not due to the Fed, but rather the Bad Bank plan that is going to take all of our problems away (not).
Jason at SentimenTrader.com had this to say about the gap open on a scheduled FOMC announcement day:
"The last time the S&P 500 futures gapped up more than +2% the morning of a scheduled FOMC announcement was...never, it's never happened before. It has gapped up more than +1% only one time (03/18/08) after which the S&P gained another 2.3% during the day before giving it all back the next."
It has gapped up more than +0.5% on an FOMC morning 11 times, and 10 of those times the S&P managed to close higher than the open by an average of +0.9%. Like we discuss often, though, extreme reactions to economic events are a consistent contrary indicator. The S&P's three-day return following those "gap up" FOMC days averaged a lousy -2.0%, and with only 3 of the 11 being positive (none of the winners were more than +1.0%). The risk/reward was skewed 3-to-1 to the downside over those three-day trades (-3.0% to +1.0%)."
So, the tendency is to give back those gains in the coming days. That is one of the reasons I booked my quick gains yesterday and am on the sidelines again after just one day in the market. If you remember yesterday I said, "I'd say if you can pick up a gain in the coming days, put it in the bank quickly and get back to safety. I want to mention quickly that Thursday of this week, according the daily EbbCharts, shows signs of some trouble for stocks."
I missed the prior 3-days' rally so being able to grab 3% was a nice gift. The rally could continue but that's enough for me. I should be able to escape January with a nice little gain, and that makes me a happy camper considering the damage that was done to the market. I actually moved into the F-fund to try to catch a short-term oversold bounce in bonds. See the chart of the AGG I discussed yesterday. The nice thing about going to the F-fund (instead of the G-fund) is that it allows me to go back to the G-fund before the end of the month if I so desire, since we can make more than 2-transfers per month as long as it is only increasing your G-fund allocation.
I don't generally discuss my allocations since I use the premium services to help me make my decisions, but as I have discussed this week, I will be looking for more quick hit and run opportunities during this bear market when I have transfers available, in an attempt to try to beat the current low returns of the G-fund. Retirement will be a long way away if we can't beat the G-fund, and opportunities will and do present themselves now and then. Of course this strategy carries with it more risk so it is a personal preference. Once we get past this bear market it will be appropriate to take on more risk, but for now, outside of the systems' buy / sell signals, I only want to expose my account to the market during high odds setups from my indicators.
I don't know if the strong end-of-January seasonality can continue the rest of the week after the gains we have seen over the last 4-days, but come Monday we will be into February and historically, February is not a very good month compared to the others.
This chart only goes through 2005, but you can see the 56 year average shows us how February stacks up.
I didn't even bring up the passing of the stimulus package in the House of Representatives. Let's just say this is quite a doozy and I would be surprised if the market embraces it positively.
That's all for today. Thanks for reading. See you tomorrow!
