12/19/11
Once again stocks opened strongly on Friday, only to see the gains nearly disappear, and in the case of the Dow, completely disappear.
The indices were mixed as we actually saw big gains in the Dow Transportation Index, strong gains in the small caps, and modest gains in the S&P 500 and Nasdaq. Only the Dow couldn't hold onto a gain as it lost 2-points on the day.
For the TSP, the C-fund gained 0.32% on Friday, the S-fund was up 0.97%, the I-fund added 0.16%, and the F-fund (bonds) gained 0.19%.
For weekly and monthly TSP returns, please see our recent TSP Weekly Wrap-Up.
The S&P 500 is trading below the 20, 50, and 200-day EMA's - a bad sign. But it is still within striking distance and the right shoulder of a bullish inverted head and shoulders pattern seems to be forming.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Here is a common outcome of an inverted head and shoulders pattern...
The Nasdaq filled one of its open gaps but there is another dangerously below the rising support line. If that happens to get filled, we'd like to see it quickly fill and close above that rising red line.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Here's a bullish sign for the market: The leading index, the Dow Transportation Index is looking pretty good. It is back above the 20, 50, and 200-day EMA's, it is in a bullish inverted head and shoulders pattern, and so far it has already successfully tested the rising support line.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transports are very sensitive to economic data, which has been pretty good lately, so it is good to see the leader acting positively. If the followers can only take the lead from this index we could be in good shape for a late December rally.
Every day last week, the S&P 500 closed below where it opened up on the day. That's 15 of the last 21 days that has happened. That sounds like a bad sign, and in the very short term it may be, but looking out a week or more and it is actually a pretty good contrarian indicator.
Chart provided courtesy of www.sentimentrader.com
Today is the Monday after an options expiration day and that has a negative bias historically. You can see below that we have a pretty strong seasonal week coming up. Despite the positive average returns, the first 2 days of this week (days 13 and 14) are actually down more often than up.
Chart provided courtesy of www.sentimentrader.com
After that it seems to be smooth sailing into the end of the year. Of course nothing on that chart says 100% and we have had some interesting December in the last few years, but this type of bias is tough to bet against.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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