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| Today's Commentary (Short Term Outlook) |
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No follow-through yet The stock market indices started the day on the downside, but crawled their way back into positive territory before noon, only to give up those gains in the afternoon and most of the major indices closed down 0.50% to 1.0%. The Dow lost 104-points.  Only those accounts that were in the G-fund were spared yesterday as all of the TSP stock funds lost ground; the C-fund was down 0.85% on the day, the S-fund lost 0.70%, and the I-fund dropped 0.45%, while the F-fund slipped 0.16%. Yesterday's action was a disappointment in that we had the perfect set up for a follow-through rally after Friday's big reversal. On the positive side, the S&P 500 made a higher high, and a higher low over Friday's trading range, and it is still trading above the 200-day EMA. Also, the trading volume was light so the selling wasn't intense.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk We do have that positive divergence on the MACD indicator, but the S&P 500 is in a new short-term downtrend and overhead resistance is building. We are due for a short-term rally, but the technical picture is deteriorating and the main question for those in the market is, should I sell a rally or hang in there? Ask yourself this: Would you be a buyer right here, or if the market rallied up to resistance? If you would be afraid to buy in this environment, then selling a rally may be your plan. I will likely look to sell myself, unless the overhead resistance can be taken out. Our friends at sentimenTrader.com wrote a little about the big reversal day on Friday and how it played out in similar situations in the past...
"What we're going to look for are any times the S&P
dropped to at least a two-month low (as it did Thursday) then the next
day it declined at least as far as its 3-month Average True Range,
before closing above the prior day's close (but below the prior day's
high - we want to exclude the extremely powerful reversals that Friday
obviously was not). Let's also stipulate that total volume was the
highest in at least the past week. "That means that the vast majority of the time, these reversals did not coincide with the ultimate low, but rather the market had more work to do on the downside before a sustained rebound.
"While we did see some modest short-term follow-through nearly three-quarters of the time, on occurrences we hit a new low within a week. Since Friday's reversal was so meager, it wouldn't be difficult to do this time around either - we'd just need to close below 1063.11, and given the table above that seems pretty likely at some point."
So that
kind of confirms a possible short-term rebound (up 76% of the time
one-week later) but more often than not, it is down 2 and 4 weeks later. |
