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| Today's Commentary (Short Term Outlook) | ||
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Tentative action Early gains were erased by the close yesterday as investors shied away before this week's jobs report. Volume was very light and the action tentative. The Dow closed down 9-points and most indices were flat to slightly higher.  For the TSP, the C-fund was up 0.06%, the S-fund added 0.10%, and the I-fund was up 1.45% with the help of a weaker dollar and early gains in U.S. stocks. The F-fund was up slightly at +0.02%.
 Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The small caps of the Russell 2000 have performed extremely well over the last several weeks, and this potential double top could indicate a short-term pullback is imminent. A breakout to new highs without a little breather would be a show of strength, but a healthy market takes an occasional break to consolidate and form bases, which creates support.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The NYSE is overbought and while not at the extreme +1000 level, it is at a level that we haven't been able to get above since September. Again, a short-term pullback will be healthy and anyone looking to buy might want to wait until we see a neutral reading at the least, or even an oversold reading.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk If you follow the Volatility Index at all, you know that it has been moving almost straight down for weeks. It has now moved down in 15 of the last 16 trading sessions, which is actually a record. Since it is record, we don't have historical comparisons, but SentimenTrader.com gave us some data showing what has happened after the VIX moved down in 13 of the prior 15 days. It is also rare event, but there were 6 occurances. 
 Obviously, the following action was less than favorable, but it was a small sample so they loosened the criteria to get more occurrences. Here's what happened after the VIX was down in 12 of the prior 15 days.  Chart provided courtesy of www.sentimentrader.com You can see that the action in the short-term is generally negative compared to a random day; showing the following day is positive only 19% of the time compared to 53% of the time of a random day. Average returns are negative going out 1-month. It sounds good to me. Let's have a little pullback, but hopefully the technical picture stays intact in the process. I have no reason to believe that this bull market is about to end, but if we see a sell-off that changes that (a move below the EMA's, a lower low, etc.) then I can re-evaluate. In the meantime, anyone looking to buy should start getting ready for a possible opportunity. The dollar continues to look "toppy" and as I mentioned before, we could see a move to the lower end of the rising trend channel, or even a potential move to the 200-day EMA.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Having that channel break isn't great for the dollar, but as long as the 200-day EMA holds, it will have a higher low, and that old resistance is there for support. Consensus estimates for the February jobs report due out Friday morning are for a loss of 20,000 jobs and an unemployment rate of 9.8%. Briefing.com has their estimate at a loss of 55,000 jobs with an unemployment rate of 10.0%. Some are suggesting that the winter storms will have pushed these numbers even lower, but if they are thinking it, then it is probably already in the estimates. Perhaps they are just bracing us for a possible bad report. If there is going to be a sharp pullback - whether temporary or longer lasting - it could be triggered by a bad jobs report, the Fed meeting on March 16, or more economic woes in Europe. Of course there's one thing I have learned in my years of trying to time the market. Always expect the unexpected. There's a lot of talk about a pullback. Maybe the market's joke on us will be that it just continues to move straight up? Thanks for reading. We'll see you tomorrow! Tom Crowley |
