|
| Today's Commentary (Short Term Outlook) |
|
Short-term shows promise The market was relatively flat on Friday but most indices finished the day with minor gains. The Dow was up 4-points and the S&P 500 gained just 0.1%, but we may have seen a breakout of the recent bull flag. For the TSP, the C-fund gained 0.14%, the S-fund was up 0.02%, and the I-fund did get the delayed benefit of Thursday's reversal on Friday, as it gained 1.0% on the day. The F-fund showed some strength gaining 0.24% on the day. For more on last week's and February's returns, please see our TSP Weekly Wrap-up. The S&P 500 continues to try to climb off of the February low after the bounce off of the 200-day EMA. It has formed another flag formation; this one a bull flag, and Friday's action may have been the start of a breakout. After a couple of shaky days last week, the index is now trading back above both the 20-day and 50-day EMA's. I'd like to see the 20-day EMA move above the 50-day EMA to give it another technical analysis victory. It is just 2-points below it going into March.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk If the Dow Transportation Index is indeed leading the way, then we might expect the S&P 500 to move above the 1112 highs made in February, as the Transports have already done.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The trend's trading channel is quite narrow and steep and may not be able to keep it up too much longer, but a test of the early January highs are a potential target. Last week we were observing the similarities between the current chart of the S&P 500 and the chart of early 2007. Friday's sideways action did nothing to take away from the comparison, in fact we were almost anticipating a sideways to slightly positive day, just based on the 2007 chart. 
 Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If
the pattern continues, we could be seeing a strong start for stocks in
March. But as compelling as it is, I don't want to get too caught
up in the comparison. It is fun while it's working and I'll
probably keep talking about it as long as it is, but we know it won't
last forever so we better keep our eyes peeled for other clues. "... to me the most intriguing aspect of yesterday's action [Thursday's reversal] was that the S&P 500 SPDR (SPY) gapped down more than -1%, closed above its open by more than +1%, yet still closed in negative territory (below the prior day's close). "In that fund's history, there have been 20 other similar days. And over the next two days, it managed to add to the late-day gains 17 times (an 85% success rate) with an average return of +2.5%. This was strictly a short-term phenomenon - looking out any longer than a few days, and the probability of a rising market moves back to random.
"What was also notable about yesterday was the extreme registered in the Equity-Only Put/Call Ratio. On the chart we update daily on the site, we use bands around the indicator to monitor extremes. Yesterday, the put/call ratio closed more than 30% beyond its average over the past six months.
Chart provided courtesy of www.sentimentrader.com "As you might suspect, the results were rare but quite positive. Over the next two days, the S&P 500 was positive 6 out of 7 times, and sported an average return of +4.0%. That outsized return is due to the exceptional volatility we tended to see accompany such extreme readings. "Here are the dates along with the S&P's return over the next couple of days: 10/08/98: +3.5% 10/18/00: +4.2% 09/17/01: -2.3% 09/21/01: +4.6% 06/14/02: +3.5% 03/17/08: +1.6% 10/10/08: +12.8%
"Like the pure price reversal study above, this was best used as a very short-term indication only, as the longer-term the results were mixed. Still, it suggests a continuation of yesterday's reversal heading into the new month."
- Jason Geopfert |
