3/09/12
Stocks rallied yesterday on... Greece? The economic data? Who knows, but I do know we are seeing impressive bull market action after the 2 day drop. The Dow gained 70-points on the day.
For the TSP, the C-fund was up 0.99% yesterday, the S-fund gained 1.25%, the I-fund jumped 2.22%, and the F-fund (bonds) lost 0.10%.
The S&P 500 broke down this week, falling below the rising trading channel and the 20-day EMA. We have talked many times in the past about buying a 2-day drop during a bull market, but I was sure we would finally see a meaning pullback so I hadn't even consider it - until yesterday.
Once the 20-day was recaptured it was looking like the pullback had already finished, but of course we will have to see new highs before that is confirmed. The pullback stabilized in a very convenient place - at the support line created from the November and December lows. That line happens to run parallel to the more narrow trading channel so it could be pretty solid support for now.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I want to repeat something we talked about on Tuesday; the day after the Nasdaq 100 saw its first 1% drop of the year. I highlighted the important parts.
[TABLE="width: 500, align: center"]
[TR]
[TD] The other market leader [Nasdaq 100] 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.
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.
[/TD]
[/TR]
[/TABLE]
History says yes, a correction is coming - but not until we see new highs first. So, if we do see new highs in the S&P 500 above the late February highs, we'll want to watch for a that level to act as support because resistance, once taken out, should act as support. If it doesn't hold, that will be the bearish sign. But I'm getting ahead of myself here. We need to see new highs first.
A quick look at the chart of oil and we can see some very bullish action (for oil). We showed these two inverted head and shoulders patterns before, but now it looks like the pullback to the neckline has completed.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Oil will likely rally with the market but if it hits $110 again, we may see a different reaction. It's something to keep an eye on.
The TSP Talk Sentiment Survey came in at 49% bulls, 40% bears, for a bulls to bears ratio of 1.23 to 1. That is another buy signal in a bull market which means the system will remain 100% S-Fund next week.
This morning we get the February jobs report. Estimates have been raised as the consensus estimates are looking for a gain of 220,000 jobs (up from 206K the last time I checked) and the unemployment rate is expected to remain 8.3%.
The bad news is, the S&P closed has closer lower on 8 of the last 9 Fridays when the Nonfarm Payroll report was released. The good news is, in this strong bull market, buying these dips has been profitable.
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.
