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| Today's Commentary |
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Bearish sentiment is very high With help from The Fed, stocks rallied sharply on Friday, salvaging what was looking to be a very bad week for Wall Street. The Dow ended the day up 165-points. For the TSP, the C-fund was up 1.69% on Friday, the S-fund jumped 2.46%, and the I-fund gained 1.05%. The F-fund (bonds) dropped 0.53%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up. The S&P 500 remains in a downtrend, but any follow-through from Friday's bounce off of the head and shoulders (H&S) neckline should test that short-term descending trading channel. The open gap is nearly full, less than 2-points away, and with the futures up modestly overnight, a positive open would close that gap pretty easily.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The chart looks very bearish on whole, but we are seeing extreme bearishness in the sentiment surveys, and although we don't always get instant gratification from these indicators, the extremely negative bulls to bears ratio of 0.43 in the AAII Investor Sentiment Survey has produces decent rallies in the past. We've only seen one other bulls to bears ratio under 0.50 to 1 since March and it did trigger a rally.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Taking a longer-term view, which contains both bull and bear markets, you can see that readings below 0.50 are pretty consistent in picking at least a short-term bottom. As I mentioned above, it's not always an instant "buy now" signal - especially during a very light volume holiday week of trading, but I won't be surprised if we see a rally.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk Our TSP Talk Sentiment Survey corroborated these results by coming in at 29% bulls, 60% bears, for a 0.48 to 1 bulls to bears ratio. A small observation if you missed it: The Sentiment System remains on a buy signal for this week, but moved from 100% S-fund to 100% C-fund because the system moved into bear market rules last week. The NYSE shows that the overbought/oversold indicator has moved back above the neutral line and is running into some resistance.
You can also see in the NYSE chart above, a good look at the longer-term head and shoulders pattern. So while we could see a bounce, the longer-term chart is looking bearish. On
Friday I mentioned how sharply the yield on the 10-year T-note has fallen
lately (from 4.0% to below 2.5%). Well, Ben Bernanke told us that The
Fed will do "all it can" to ensure an economic recovery and that not only
helped stocks rally on Friday, but pushed yields up 6.1% on the day to
2.65%, after being as low as 2.49% earlier in the week. This is a
pre-holiday week and many investors and traders are on vacation. I
expect volume to be very light and that means the indices can get pushed
around quite a bit. You can't always
trust the action of a pre-holiday week so whichever way we trade, I would
expect it correct after the holiday.
Here is the seasonality chart for September. It is not the best month
historically, returns-wise. It's actually the worst...
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