Short-term noise vs. a long-term road map
The selling this past Friday took the indices into the red for the week. We are certainly seeing some kind of change in character in the market as the bulls have not been able to take the indices higher despite some bullish setups we’ve been seeing.
For the TSP, the C-fund fell 0.28% on the week. The S-fund lost 0.54% and the I-fund gave up 0.15%. Bonds (F-fund) added 0.21%, and the G-fund was up 0.06%
For the month of May the C-fund is now down 1.79%, the S-fund is off 2.62%, and the I-fund lags the pack being down 4.59% on the month. The F-fund (bonds) is up 0.63% in May, and the G-fund has made 0.10%.
For the month of May the C-fund is now down 2.07%, the S-fund is off 3.15%, and the I-fund has given up 4.74%. The F-fund (bonds) is up 0.84% in May, and the G-fund has made 0.16%.
Technically, the S&P 500 had plenty of reasons to hold at support levels and continue the breakout of its inverted head and shoulders pattern. Instead, the intermediate-term support line (green) was broken and we have a new short-term downtrend (red).
Chart provided courtesy of www.decisionpoint.com
I can see a few reason on both sides of the argument. The S&P is still above its 50-day EMA and sentiment is very bearish, and with sentiment being a contrarian indicator, I would be surprised if any downside action is very harsh, if we get any more downside at all. On the other hand, the chart looks a little “toppy” as we break support and develop this short-term downtrend.
Whether you believe in technical analysis or not, looking at this longer-term chart, there are some obvious trend lines that seem to have more of an influence on the market direction than others, and it does not hurt to pay attention when we start approaching them. It looks like a bit of a mess but I hope it makes some sense when you look at the different color support and resistance lines.
Rising wedges tend to break to the downside so like the blue rising wedge we saw in 2009, the current red rising wedge could easily resolve to the downside at some point and we would probably see a test of either the current longer-term bull market support line (black) and / or the green line that was resistance twice in 2010, and support once in March or 2011.
Chart provided courtesy of www.decisionpoint.com
If the longer-term bull market support line (black) holds, the angle of inclination of the current bull market will resume. If that longer-term bull market support line (black) does not hold, it could easily become resistance on the way back up. At that point we’d be looking at the long-term green support/resistance line for some help. (The purple and aqua arrows illustrate this.)
Should either of these play out we could see higher prices either way several months down the road, but I would look for the gains to be more tepid if the black line of support fails.
Of course if that green line breaks, we could be looking at a new bear market.
The chart above is a weekly chart but emotions are more affected by the short-term. A 200-point rally or sell-off in the Dow would be a blip on that chart, but if you watch the market during the day you know how much a 200-point move can affect your psyche. So, having some sort of idea of what obstacles may be in the way, or where the market could find support, helps us develop a basic plan of attack. That is, buy when support holds, and sell if it breaks. And buy if resistance is broken and sell if it holds. You just have to know where the support and resistance are. Sounds easy, right? How come it never is? J
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
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.
The selling this past Friday took the indices into the red for the week. We are certainly seeing some kind of change in character in the market as the bulls have not been able to take the indices higher despite some bullish setups we’ve been seeing.
For the TSP, the C-fund fell 0.28% on the week. The S-fund lost 0.54% and the I-fund gave up 0.15%. Bonds (F-fund) added 0.21%, and the G-fund was up 0.06%
For the month of May the C-fund is now down 1.79%, the S-fund is off 2.62%, and the I-fund lags the pack being down 4.59% on the month. The F-fund (bonds) is up 0.63% in May, and the G-fund has made 0.10%.
For the month of May the C-fund is now down 2.07%, the S-fund is off 3.15%, and the I-fund has given up 4.74%. The F-fund (bonds) is up 0.84% in May, and the G-fund has made 0.16%.
Technically, the S&P 500 had plenty of reasons to hold at support levels and continue the breakout of its inverted head and shoulders pattern. Instead, the intermediate-term support line (green) was broken and we have a new short-term downtrend (red).
Chart provided courtesy of www.decisionpoint.com
I can see a few reason on both sides of the argument. The S&P is still above its 50-day EMA and sentiment is very bearish, and with sentiment being a contrarian indicator, I would be surprised if any downside action is very harsh, if we get any more downside at all. On the other hand, the chart looks a little “toppy” as we break support and develop this short-term downtrend.
Whether you believe in technical analysis or not, looking at this longer-term chart, there are some obvious trend lines that seem to have more of an influence on the market direction than others, and it does not hurt to pay attention when we start approaching them. It looks like a bit of a mess but I hope it makes some sense when you look at the different color support and resistance lines.
Rising wedges tend to break to the downside so like the blue rising wedge we saw in 2009, the current red rising wedge could easily resolve to the downside at some point and we would probably see a test of either the current longer-term bull market support line (black) and / or the green line that was resistance twice in 2010, and support once in March or 2011.
Chart provided courtesy of www.decisionpoint.com
If the longer-term bull market support line (black) holds, the angle of inclination of the current bull market will resume. If that longer-term bull market support line (black) does not hold, it could easily become resistance on the way back up. At that point we’d be looking at the long-term green support/resistance line for some help. (The purple and aqua arrows illustrate this.)
Should either of these play out we could see higher prices either way several months down the road, but I would look for the gains to be more tepid if the black line of support fails.
Of course if that green line breaks, we could be looking at a new bear market.
The chart above is a weekly chart but emotions are more affected by the short-term. A 200-point rally or sell-off in the Dow would be a blip on that chart, but if you watch the market during the day you know how much a 200-point move can affect your psyche. So, having some sort of idea of what obstacles may be in the way, or where the market could find support, helps us develop a basic plan of attack. That is, buy when support holds, and sell if it breaks. And buy if resistance is broken and sell if it holds. You just have to know where the support and resistance are. Sounds easy, right? How come it never is? J
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
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.
