Panic?
Stocks sold
off yesterday on "an unexpected
increase in U.S. jobless claims and growing sovereign debt will derail
the economic recovery."
When all was said and done, the Dow lost 268-points, leaving it
perilously close to the edge of the 10,000 level. Does this mean
we will get another Dow 10,000 party on CNBC?
The TSP
stock funds were all down between 3% and 3.6%, while the F-fund gained
0.31%. And we thought the jobs report would be the catalyst.
Silly me.
The S&P 500
was hammered with the rest of the market, and the 3.1% decline went
below last Friday's low, but it is still trading above some support and
the 200-day EMA.
I had mentioned the other day that we could see some "games" played to
get investors to lean the wrong way. We saw it at the low in late
October where the Dow jumped 200-points, only to drop 250-points the
following day, and then the next rally started. The market seems
to do whatever it can to make the most people wrong at any given time,
but more so at market tops and bottoms.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
We could be
seeing a little of that today as there was a little panic in the air,
and any time you get panic selling, you can expect a snap-back rally to
follow. The VIX jumped 4.5 points yesterday, so yes, there was
some panic. But make no mistake about it - something is changing
and we need to be on our toes.
We know there are cracks in the fundamentals of this market, but
earnings have been good, we saw decent GDP growth, and the pace of job
loss has been slowing dramatically. But the fundamentals don't
give us the timely story. The one interesting divergence is the
strength of the dollar recently. You'd expect it to be weaker if
the fundamentals are going to give way. Perhaps the economic
weakness in Europe is just making the dollar seem stronger in comparison
to other currencies?
I better go read
Scribbler's Economic report to help me out, because I don't always
get it. That's why I use technical analysis. The market had
been riding high for over ten months, and that's all that matters to
market timers. Now, whether the fundamentals turn south on us or
not, the market is trying to tell us something and I guess we better
start listening.
The Dow Transportation Index also lost 3% yesterday, but the interesting
part was that it fell to its 200-day EMA. Just like on the way up,
it is difficult for indices to go straight through the 200-day EMA on
the first try. This was the second test in three months, so will
we get a third shot - meaning another rebound first?
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
As you might expect, the sentiment surveys came in quite bearish, but
what makes the AAII Investor Sentiment survey interesting is that it was
taken before yesterday's 268-point sell-off, yet it was still very
bearish.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
The 0.67 to 1 bulls (29%) to bears (43%) ratio is deep into the overly
bearish territory, and we could get a little rally off of this.
The TSP Talk Sentiment
Survey came in at... you guessed it: 0.67 to 1. Bulls 36%.
Bears 54%.
The last time we saw a ratio this low was the week of July 13, 2009.
The market rallied 7% during that week.
The last two times we saw ratios in the 0.70's:
Nov 2, 2009: +3.20%
Oct 5, 2009: +4.51%
The bad news is, before that we saw very low ratios throughout the bear
market that did little to help the market. So, if we are starting
a new bear market, this may not be a buy signal. But if this bull
market still has anything left, we should see a decent bounce soon.
These are the kind of times that produce heroes and goats. It is a
nerve wracking situation where it is either the best buying opportunity
in three months, or we are about to embark on a break of the uptrend
that could lead to another leg down in a long-term bear market. If
you guess right - hero. If you're wrong - goat.
I was looking for some kind of bounce to sell into, although I was not
totally convinced that the market was rolling over. The two-day
rally probably should have been my "out", but I didn't take it as I
thought we'd see a little better push higher. I guess they call
that greed.
As long as we're trading above the
200-day EMA, and the 50-day EMA is above the 200-day EMA, we are
officially in a bull market where we buy dips. Should the S&P 500
fall below the 200-day EMA, and follow up with the 50 falling below the
200, then it becomes official and it will be time to sell any rallies
and play total defense. Unfortunately (or
fortunately, depending how you look at it) the 50-day EMA is still
42-points above the 200-day EMA, so we could have a long wait.
Again, we could get a bounce in the short-term but something is changing
and we need to be prepared for a possible end to the current bull
market. Good luck, whatever you decide!
Let me repeat some still relevant info from yesterday's report...
For
the last several months we have seen an interesting pattern with Friday
and Monday trading. I am taking into account Tuesday's trading
action if Monday was a holiday.
We have had 8 consecutive positive Mondays (or holiday week Tuesdays) in
the market, and 13 of the last 14 have been positive.
The last 3 Fridays have been negative and only 7 of the last 14 Fridays
have been positive. All 3 of the Friday's during that period, that
were jobs report Fridays, were positive.
Consensus estimates for this morning's jobs report are for a gain of 15,000
jobs in January, with an unemployment rate of 10.0%. It's
interesting to note that briefing.com's
estimate is for a loss of 40,000 jobs. That's quite a difference.
That tells me that the "whisper number" may be lower so we could see the
market react positively if we do see any kind of positive number. We'd
probably have to see a loss of something over 50,000 jobs to see a
negative reaction - but who knows. There is a caveat.
February happens to be the month that huge
revisions are made to
old reports and they are talking about seeing over
800,000 job losses
added to those old reports. I don't want to sound like I am
putting a bullish spin on everything, but when you hear something like
that, which you would think would be a huge negative for the market, it is usually
already priced in and the market does the opposite of what you and I (or
any dumb money) might think would happen. It's too easy to say the
market will sell-off on something like that.
Thanks for reading. Have a great weekend!
Tom Crowley
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