Investors and traders took full advantage of the historically strong seasonality and light volume pattern of the holiday trading over the past two weeks. This week, reality kicks in and we should get a better idea if this recent rally is for real.
The S&P 500 produced a breakout to a higher high, which is something we like to see, but with volume at about half of a normal trading day, it is very tough to trust the action. It has now given us a one day close above the downtrend line and the 50-day moving average. A strong market will close above those levels for at least two to three days. We'll see how that goes.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I used the MACD histogram indicator above to show a recent divergence. You can see that the MACD is not making a higher high, despite the higher in the S&P 500. Perhaps it is the volume that is lacking and the MACD will make a move this week, but for now we should look at this with caution.
The big question for 2009 is whether all of the bad news has been factored into the market's weakness in 2008. If there is another series of poor economic reports, bankruptcies, bailouts, business failures, credit woes, and has it already been discounted into the market, or will this pull the plug on a rally?
We don't know for sure of course, so let's keep an eye on the charts and indicators, which right now are quite overbought and sentiment is overly bullish. So again, caution is warranted.
The new TSP Talk Sentiment Survey System is on a sell signal to start the year because of the overly bullish reading. See the sentiment system page for more info.
That's all for today. Thanks for reading! We'll see you back here tomorrow.
The S&P 500 produced a breakout to a higher high, which is something we like to see, but with volume at about half of a normal trading day, it is very tough to trust the action. It has now given us a one day close above the downtrend line and the 50-day moving average. A strong market will close above those levels for at least two to three days. We'll see how that goes.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I used the MACD histogram indicator above to show a recent divergence. You can see that the MACD is not making a higher high, despite the higher in the S&P 500. Perhaps it is the volume that is lacking and the MACD will make a move this week, but for now we should look at this with caution.
The big question for 2009 is whether all of the bad news has been factored into the market's weakness in 2008. If there is another series of poor economic reports, bankruptcies, bailouts, business failures, credit woes, and has it already been discounted into the market, or will this pull the plug on a rally?
We don't know for sure of course, so let's keep an eye on the charts and indicators, which right now are quite overbought and sentiment is overly bullish. So again, caution is warranted.
The new TSP Talk Sentiment Survey System is on a sell signal to start the year because of the overly bullish reading. See the sentiment system page for more info.
That's all for today. Thanks for reading! We'll see you back here tomorrow.
