06/26/13
Stocks rallied sharply yesterday as the Dow gained 101-points on the day. That's 13 triple digit moves for the Dow in the last 17 trading days in June so far, and 10 in the last 11 days.
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[TD="align: right"] +1.21%[/TD]
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[TD="align: right"] +1.27%[/TD]
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The S&P 500 has reversed and rebounded nicely sending the index back into the descending short-term trading range. The 50-day EMA is within reach and that might be the big test for this pullback. Technically, there is still a lot of concern on the chart.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Going back to the 1987 comparison, the S&P 500 is sitting within the area below the longer-term rising support line (red) and the 50-day EMA, and above the bottom of the descending short-term support line (blue dashed). If that's the case, then there could be more room to move up to test the overhead resistance.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Of course testing that resistance in 1987 was the beginning of the end for the S&P.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The weekly chart of the S&P 500, where each bar on the chart below represents the action of an entire week, shows there is some decent support near current levels, but last week there was a negative outside bar created, and that could be a sign of trouble for the intermediate-term.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
There was also a weekly PMO sell signal and the prior two weekly sell signals saw 3 to 4 more weeks of downside action before the S&P bottomed.
I have been talking crash, and while there is an element of entertainment value in discussing it since it is such a rare event, the six recent Hindenburg Omen signals added to the level of caution I am taking. But crash talk aside, dumb money investor sentiment has gotten so bearish that it would seem that we are more likely at a great buying opportunity than at the cusp of a crash.
The Rydex Cash Flow Ratio shows just how bearish investors have become in just the last 2 to 3 weeks. You can see readings this low on the chart tend to be near bottoms, not tops.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Also, the small "odd lot" short sale traders are at some pretty extreme levels. Short sales are bets against the market so these traders are betting the market is going to go down. Odd lot means trades of fewer than 100 shares, so they are the smallest, and likely least knowledgeable traders.
Chart provided courtesy of www.sentimentrader.com
So this could be the reason why we don't crash, but 6 Hindenburg Omen signals, charts that are are breaking sown technically, and continuing to follow the 1987 roadmap has me playing defense, at least until the 1987 comparison stops.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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