3/06/12
Stocks opened sharply lower on Monday morning, but the dip buyers showed up about an hour into the trading day and took the indices up to close with more moderate losses. The Dow dropped 15-points but the Nasdaq 100 lost 1% for the first time all year.
For the TSP, the C-fund was down 0.38% yesterday, the S-fund lost 0.28%, the I-fund dropped 0.47%, and the F-fund (bonds) slipped 0.10%.
We may have seen a crack in the ascending trading channel, which would make sense since the market leading Dow Transportation Index did this in February. We have been waiting to see if the 2011 would be broken or if the rising trend would be broken.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The S&P 500 is still above the 20-day EMA, but the break in the trading channel is an eye opener.
The market leader Dow Transportation index broke down last month. It is also trading below the 50-day EMA and is now testing the lows made in February. We could be seeing a bottom here, but if oil continues to move higher it is more likely that this low will be taken out.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The other market leader just experienced its first 1% loss of the year - something the Transports have already done, but the S&P has not. This initial 1% drop in the Naz 100 (NDX) is a sign that lower prices are around the corner, but history shows that we are likely to see new highs first - before any kind of correction.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
According to sentimenTrader.com: "Going back nearly 30 years, there was one only other time the Nasdaq 100 didn't suffer a -1% down day for at least two months, then fell more than 1% from a multi-year high.
"That was 06/05/89, after which it popped right back up to another new high, then rolled over and dropped more than -5% during the next month."
If they loosened the parameters to no -1% down days in the past month (instead of two months), then they got 3 more occurrences, 11/23/99, 10/11/07 and 1/19/11.
All of them saw the NDX climb back to a new high within the next few sessions, but the latter two saw the index top out within the next couple of weeks after reaching those new highs.
When they loosened the parameters looking only for a one-year high (instead of a multi-year high) then they got get two more occurrences, 9/9/03 and 4/16/10.
Once again, the index popped right back up to a new high within days, but those highs proved fleeting and it lost at least -5% during the next several weeks.
Oil has been volatile since its breakout above the $104 level a couple of weeks ago. It started to sell-off early yesterday but rallied later. The reversal pattern has a good tendency to precede at least some short-term gains in the coming days, and in some cases, large gains.
If they loosened the parameters to no -1% down days in the past month (instead of two months), then they got 3 more occurrences, 11/23/99, 10/11/07 and 1/19/11.
All of them saw the NDX climb back to a new high within the next few sessions, but the latter two saw the index top out within the next couple of weeks after reaching those new highs.
When they loosened the parameters looking only for a one-year high (instead of a multi-year high) then they got get two more occurrences, 9/9/03 and 4/16/10.
Once again, the index popped right back up to a new high within days, but those highs proved fleeting and it lost at least -5% during the next several weeks.
Oil has been volatile since its breakout above the $104 level a couple of weeks ago. It started to sell-off early yesterday but rallied later. The reversal pattern has a good tendency to precede at least some short-term gains in the coming days, and in some cases, large gains.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Based on the action in the Nasdaq 100 and the strong bullish momentum in the major stock indices, I don't expect the bulls to give up too easily. We could see new highs pretty quickly, but sooner or later, and I would guess sooner rather than later, we will get some kind of a pullback.
Thanks for reading! We'll see you back here tomorrow.
Administrative Note: RevShark is offering free access to his TSP Timing Newsletter and Daily Afternoon Commentary from March 1 thru March 14. Please click here for more information.
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.
