Low confidence is not a
bad thing for stocks
Stocks sold
off yesterday after the Consumer Confidence report came in much lower
than expected. The Dow dropped 100-points.
Selling off
on
the bad new is not much of a surprise, but would you believe the low
confidence reading might be a good thing?
For the TSP, the C-fund lost 1.21%, the S-fund was dropped 1.33%, and the
I-fund gave up 1.47%. The oversold F-fund gained 0.38% as
investors looked for safety.
The selling in the S&P 500 was harsh but after what it has been able to
do since bottoming near 1044 a few weeks ago, this overbought selling is
nothing to worry about, yet. The trend is still up, but there are
some concerns with the chart. It is not shown in this chart but
the S&P closed right at the
20-day EMA, falling below the 50-day EMA (~ 1098). If it closes
below the 50-day EMA, and / or breaks this uptrend
for 3-days straight,
I will become more concerned.
Chart provided courtesy of www.decisionpoint.com,
analysis by TSP Talk
Both market leaders, the Dow Transportation Index and the Nasdaq have
similar "V" shaped rebounds and the trends are holding so far.
Chart provided courtesy of www.decisionpoint.com,
analysis by TSP Talk
The Nasdaq does have an open gap near 2185 and a nice setup for the
bullish case might be an early washout-type decline to 2185, and a close
back above the trend line in the 2205 area.
Chart provided courtesy of www.decisionpoint.com,
analysis by TSP Talk
The dollar was up yesterday and remains in its uptrend but has
pulled back slightly after hitting the top of the trading channel.
This one could go either way - a move to either support areas or, as
some Elliott Wave followers are saying, it could break above the upper
channel as it hits wave 3. I have no idea myself, but if it does
break the upper channel the I-fund will not be the fund to be in if you
are in stocks. That overhead resistance, if broken, will likely
become support.
Chart provided courtesy of www.decisionpoint.com,
analysis by TSP Talk
Back to Consumer Confidence. The 46.0 consumer confidence reading
yesterday was well below the 55.0 consensus estimate. Sounds terrible,
right? Well, like sentiment surveys, these consumer confidence
reports are also good contrarian indicators when they are at extreme
readings.
You can see below that the lower the confidence level, the more likely
that the market finds a bottom and starts to rally.
Chart provided courtesy of www.sentimentrader.com
The above chart is a long-term chart and does not really show the
smaller "wiggles" in the market that we tend to focus on, so this 46.0
reading may not give us a rally today, but it could be telling us
that the current rally may still have something left. I would be
more worried if this report came back with a confidence level near 100 -
120, or more. The market might have rallied on that news, but that
kind of number would probably mean that we were closer to a top than a
bottom. The concern I have for us shorter-term market timers, is
if we get that double dip recession. Then we could see a reading
under 30 again before the market rebounds again. That would likely
mean some short-term pain for the stock indices.
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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