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| Today's Commentary (Short Term Outlook) |
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Momentum vs. optimism Stocks rise again. The Dow added another 48-points as the winning streak continues. For the TSP, the C-fund was up 0.58%, the S-fund added another 0.71%, and the I-fund gained 0.45%. The F-fund was up 0.07%. The S&P 500 followed through on Tuesday's breakout and the chart really looks good from a technical standpoint. Although I am not big on trading fundamentals, I am concerned with the fundies, but the technical picture is so good, I am just waiting for an opportunity to get on the train. Looking for some extremes that may produce an elusive pullback, shows us that the S&P is now trading 103-points above the 200-day EMA. If you remember a few months ago, we were seeing pullbacks when that spread hit the 113 to 115 level, so it is closing in on that area again.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk More extremes: We talked about the CBOE Equity put/call ratio being at an extreme reading (overly bullish) the other day. SentimeTrader.com took it a step further comparing that ratio to the ISE Equity put/call ratio. They say: "When both ratios show that call option trading outnumbered put options by at least 2-to-1, the market has struggled mightily over the next couple of weeks."  
Charts provided courtesy of www.sentimentrader.com "As we can see from the table, only twice has the S&P 500 managed to close higher two weeks following such extremes. There was very limited upside even at the best point (nothing more than +2%), and the average drawdown of -3.1% was more than three times greater." While on their website, I also noticed their smart money / dumb money hit another level of being overbought. The dumb money indicator jumped over 70, which is an extreme reading.  Chart provided courtesy of www.sentimentrader.com Combined with the 38 reading for the smart money (below 38 is an extreme) we have a pretty good short-term sell signal here. I am becoming more and more bullish as the charts get more and more positive, but I can not get myself to buy an extended, overbought, overly bullish market. With March's seasonality (see chart below) coming off its peak, I am hoping the indicators are pointing to a pullback / correction that can be bought. For those interested, we are starting our annual March Madness Contest. For more info, please click here. Thanks for reading. Happy St. Patrick's Day! We'll see you back here tomorrow. Tom Crowley |