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| Today's Commentary (Short Term Outlook) |
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Strange sentiment
readings Stocks rallied strongly early in the day, but reversed just as hard late in the day. After a triple digit gain in the afternoon, the Dow could only manage a 5-point gain by the close. It was a negative swing day, and they can lead to more short-term downside, but this market is in a strong uptrend and this could be setting us up for that long awaited buying opportunity. As we will talk about below, despite the monster rally, investors are getting worried, and that might be bullish. For the TSP funds the C-fund lost 0.17%, the S-fund dropped 0.76%, the I-fund fell 0.25% , and bonds fell again as the F-fund lost 0.23%. The S&P 500 remains firmly in an uptrend, and technically in very nice position. The big negative at the moment is the "kangaroo-tail" reversal on Thursday, but that only has short-term implications at this point. We are due for a pullback, sure, but the 20-day EMA may be the target. There is also rising support at the 20-day EMA near 1150.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk I was looking at the S&P 500 chart from 2006-2007, where we had a similar seemingly relentless rally. Time and time again from the summer of 2006 into early 2007, the market would pull back to the 20-day EMA, only to resume the rally almost immediately. It finally took an economic event (in China) to push the index down sharply, and the losses were steep and quick. I think we could see something like this involving Greece or other European country, but we may need to keep buying the dips to the 20-day EMA until it happens.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk A funny thing is happening with sentiment. I accidentally sent out this week's TSP Talk Sentiment Survey with the wrong dates so the original turnout for the poll was very light, and surprising very bearish. Later in the day I sent out an additional survey with the correct dates via email to get some more votes. To my surprise, the sentiment stayed quite bearish - almost too bearish for what we have been seeing in this incredible bull market. As of this writing the results were 45% bulls, 43% bears for a 1.05 to 1 ratio - which is a buy signal.  I thought that perhaps it was a mistake because of our email screw up, but the AAII Investor Sentiment Survey actually confirmed it.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk AAII had a 0.91 to 1 bulls (32%) to bears (35%), another surprisingly bearish sentiment from a market that has been rallying strongly for seven plus weeks. It seems that many are expecting a pullback and we know that when most of us expect something, we rarely get it. This did not get past SentimenTrader.com either. They ran the numbers and we get another surprise. It wasn't that big of an advantage. One week later the market did do well, but one month later it was positive less often than any random monthly return. The 3-months return did well, and 6-months out showed the best advantage for some reason.  Chart provided courtesy of www.sentimentrader.com So we have a market in a strong uptrend with very technically sound charts. Investors are much less bullish than you might expect given the recent strength, and that is a fresh new buy signal from our Sentiment Survey system (which has already been on a buy signal since January 25th) I am keeping an eye on Europe because that could be where the next negative catalysts manifests, but I plan to buy any move down the 20-day unless we get a day like we saw in 2007 where the 20-day EMA and the 50-day EMA were taken out (in one day). Then I would look to let the dust settle, and buy the 200-day EMA - but I'm getting way too ahead of myself. Thanks for reading. Have a great weekend! Tom Crowley |