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| Today's Commentary (Short Term Outlook) |
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Blue or purple? Stocks rallied on some positive action in banks stocks and from news that health-care reform might be harder to pass than originally thought. The Dow added 44-points. For the TSP, all of the funds closed higher in the day. The C-fund was up 0.44%, the S-fund had a gain of 0.33%, the I-fund picked up 0.07%, and the F-fund added 0.03%. The rally continues and the 2007 chart is still being played out. The one difference is that the sharp relentless rally in 2007 came after the breakout, where as the current market has not really broken out yet (in the S&P) during the similar relentless rally. I hope what I am about to show you isn't too difficult to follow. The original 2007 "rhyme" comparison is the blue box in the next two charts. The second comparison is the purple boxes.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk As long as the blue box comparison continues, the market will be fine. We would breakout to new highs; possibly 5% to 10% higher than where we are now. But the purple box comparison shows another story. You can see that the market rallied sharply in 2007 (purple box), creating a "V" like bottom, then broke out to a new high, but then quickly fell apart. This is my concern for the current market, and it still has to do with Greece.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk I am very bullish when looking at the moving averages, trends, breakouts, etc. Even the overbought readings are not a problem as it just tells us we might want to wait to buy the dips. The concern is, in the 2007 chart, we saw a similar bullish technical setup, complete with a new breakout, but that breakout quickly failed and the correction was sharp. Greece's initial deadline for their deficit plan is next Tuesday, and we also have an FOMC meeting that day. Next week could decide whether we get the blue box, or the purple box. We talked several weeks ago about bull markets not ending quickly. I was nervously bullish when the S&P 500 rebounded off of the 200-day EMA in February, as we have seen time and again that bull markets don't normally end with a single peak. While I was bullish and looking for a rally at that 200-day EMA, I was concerned that 2010 could be rocky, and a move back to new highs would be possible, but it might be a fake out - and that's where I am now. That is, nervous that this is a big old trap. The one big positive is that other indices have made new highs, and so far have held. The TSP Talk Sentiment Survey came in at 56% bulls, and 31% bears for a 1.81 to 1 bulls to bears ratio. That's the highest (most bullish) since mid-January, just prior to a large pullback - although that ratio was over 2 to 1 at the time. The AAII Investor Sentiment Survey is also at a 1.8 to 1 bulls to bears ratio, with similar indications as our TSP Talk survey.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk SentimenTrader.com's smart money / dumb money indicator hit that 40/60 sell ratio. When the smart money goes below 40% and the dumb money goes over 60%, this give this indicator a sell signal.  Chart provided courtesy of www.sentimentrader.com But you can see that the ratio has been higher in the past and the 40/60 number does not always mark a market top, but it has on average, worked out to be a pretty good sell signal over the years. Thanks for reading. Have a great weekend! Tom Crowley |