12/05/11
Stocks closed mostly flat on Friday after opening strongly on the better than expected jobs report. Some were finding issues with the jobs report as the day went on but I think the big gains earlier in the week gave investors reason to take profits before another important weekend full of of meetings in Europe. The Dow closed down less than a point.
For the TSP, the C-fund slipped 0.02% yesterday, the S-fund gained 0.36%, the I-fund added 0.11%, and the F-fund (bonds) was up 0.36%.
For weekly and monthly TSP returns, please see our recent TSP Weekly Wrap-Up.
We have kind of a mixed bag heading into the strongest month of the year. The bigger trend is probably considered down until we see a break above the large blue trading channel (below). The short-term trend is up after last week's big gains.
The S&P 500 is back above the 20, 50, and 200-day EMA's, and although I don't hear anyone talking about it, I see a possible break to the upside from a big bull flag (in red). The top red line of the flag needs to hold as support and that would coincide with the 200-day EMA, so it looks like strong support, and it it breaks, we know that would be a warning sign.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We've been talking about the strong seasonality this month, and while the first 4 trading days in December tend to be good, there is a lull from the 5th to about the 12 to 15th days, before the very strong Santa Claus rally season starts.
The put / call ratios are giving a mixed signal. Normally the smart money and the dumb money are not on the same page. You can see that when the market bottomed in early October, the dumb money was very bearish compared to the smart money, but right now the CBOE (dumb money) and the OEX (smart) put / call ratios are showing bullishness. As a reminder:
When the smart money is bullish, it tends to be bullish for the market.
When the dumb money is bullish, it tends to be bearish for the market.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
While I like that the smart money is bullish, I would take "agreement" between the two as being a slightly negative sign because the dumb money is usually more consistently wrong. The smart money action could just be some end of the year positioning.
But then, take a look at this interesting information from sentimenTrader.com:
"Despite a massive October rally, speculative penny stock traders actually reduced their trading activity last month. Share volume, dollar volume and transaction volume are all dragging along at or near decade lows.
"The only other times volume has been this depressed were near the prior two bear market lows in the falls of 2002 and 2008.
"We currently have few extremes among our sentiment indicators, and those that are mostly cancel each other out, so there is no clear bias either way."
Chart provided courtesy of www.sentimentrader.com
So this looks like a very positive indicator as the small speculative investors are getting worried, or at least less active, and that is a bullish sign.
The dollar's recent breakdown would also be a good sign for stocks right now. This dollar ETF - UUP, has a large open gap down near 21.25 and it looks like a possible target should the dollar stay below the rising wedge.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
There was a similar gap in September and it took about two months to get filled, but it did get filled, so I don't see why the current gap wouldn't eventually get filled. That would strengthen the case for a stock market rally into the end of the year.
There are enough concerns out there between Europe and our own fiscal problems that it would be tough to get too comfortable with the bullish case, but I think if we just watch our indicators and support levels we could get enough of a warning to get us out before any real trouble begins - if it does.
The TSP Talk Sentiment Survey came in at 55% bulls, 33% bears, for a bulls to bears ratio of 1.67 to 1. That is a sell signal in a bear market which means the system will remain 100% G Fund for this week.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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