Another down day, but...
                         
Stocks were down again yesterday although we did see a nice intra-day reversal when buyers stepped in. 

The market leaders, Dow Transports, the Nasdaq, and small caps, were all down sharply again, which is not a good sign, but the Dow has actually only lost about 15-points in the last two days.
 
                                  
For the TSP, the C-fund was down 0.13% yesterday, the S-fund fell 0.96%, the I-fund lost 1.94% as it played a little catch up to Wednesday's losses, and the F-fund (bonds) dropped 0.47%. 

The S&P 500 did break its short-term support, but rebounded sharply (about 10-points or nearly 1%) after hitting the 20-day EMA. 
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The fact that the S&P 500 bounced off of the 20-day EMA is a good sign because if this rally turns out to be anything like the one we had in 2006-2007, which I keep referring to, then we may have more upside left.
                 
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The current rally has been going for over 4-months with only a brief move below the 20-day EMA, and the rally in 2006-2007 lasted about 7-months, abruptly ending ironically when China's Shanghai crashed in February of 2007.  That mini-crash actually only lasted a week or so before the rally resumed into June / July.  Staying above the 20 and 50-day EMA's are the key.

With the Dow Transports and our small cap S-fund each losing about 3% in the last 2 days, and the rise in bearishness (we'll talk about the Sentiment Survey in a minute) it may be surprising to see this weekly chart of the S&P 500, which has barely blinked.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I can only imagine how bearish sentiment will get if we experience a real pullback or correction. 

According to our friends at SentimenTrader.com, there were 23 other times since 1928 that the S&P 500 went at least 30 days without a 1% decline, then experience a 1% plus decline the day after scoring a fresh new 52-week high.  The table below shows how it performed going forward.  This chart's data is from Wednesday's market action so the "Next Day" is actually talking about Thursday, which of course has already happened...

 
                                Chart provided courtesy of www.sentimentrader.com

The "Next Day" average of the 23 occurrences was 0.0%, and the S&P 500 was down 0.13% on Thursday so we were close to the average.  The "3 Days Later" stat of being positive 74% of the time seems to be the best performing period after the decline, and that would include Thursday through this coming Monday.  Even "1 Week Later" had a better than average positive return, but after that things were more in line with any random period.

The TSP Talk Sentiment Survey came in at 39% bullish, 52% bearish for a bulls to bears ratio of  0.75 to 1.  That is actually a fresh new buy signal (anything 1.25 to 1 or lower is a buy in a bull market).  So, the Sentiment Survey System's allocation will remain 100% S-Fund for next week.

Thanks for reading!  Have a great weekend!

Tom Crowley