12/06/11
Stocks rallied strongly on Monday morning, but credit rating downgrade warnings to France and Germany saw the indices finish well off of their highs. Still, the Dow managed a 78-point gain by the close.
For the TSP, it was green across the board as the C-fund gained 1.03% yesterday, the S-fund was up 1.36%, the I-fund added 0.97%, and the F-fund (bonds) was up 0.10%.
The S&P is showing signs of fatigue after the 8% rally off of the lows. I like that that it is trading above the 20, 50, and 200-day EMA's, and that it has broken above the flag formation, but I would not be surprised if we see some sideways action, similar to what we saw in October after that spike higher.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq is going to have to get past its overhead resistance, and while I am not that bearish, those large gaps in the Nasdaq are a concern to me. Since gaps tend to get filled sooner rather than later, is it possible that the market can give back most of its recent gains to fill those gaps? I am hoping the positive holiday bias will put that off until we are into 2012.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow Transportation Index is usually the market leader, and yesterday it flirted with making a higher high. Double tops like this tend to pullback some before breaking out, but not always. You can see that the summer double top truly turned out to be a top, but the October double top saw a successful breakout. This is clearly an important juncture for this leading index.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Looking at some short and longer-term indicators shows that a short-term pullback or consolidation would seem reasonable as the market is stretched, but the slower indicators are showing more of bottoming sign than a topping.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Although I am not impressed with the headlines and economic situation around the world, I like what I am seeing in the charts and indicators. But I can see the market pausing here for a few days or so before we get another leg up. The seasonality chart shows that this time of the month historically can be bumpy before the Santa Claus rally during the last 2-weeks of the month.
For that reason I did some selling yesterday with the intention of buying back in a few days or more. I did leave some in the stock funds just in case the market does not want to take a break. Normally I wouldn't do that - it's usually all or nothing - but I'd rather err on the side of being too bullish in December.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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