Train kept a rollin
Stocks plowed ahead again yesterday with the
Dow picking up 108-points and the TSP stock funds gaining an impressive 1.5%
to 2% with the S fund leading the way.
We have talked many times about the stock market being a leading indicator -
not for the market itself obviously, but for the economy. We have seen
this again this year. The S&P 500 is up an astonishing 61% during the
six month period since the March low and just this week the Fed is saying
that the recession may be over. Whether you believe the recession is
over or not, the market sniffed this out months before the economists or
anybody else.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
I guess the question now is, where will the market be six months from now?
You don't want to ride the market down for the next six months only to have
the Fed tell us in March of 2010 that we are back in a recession.
So, while the market is a great indicator, it isn't really helping us
determine what stocks will do next week or next month. That's why we
have to use other indicators to give us the clues.
I admit that my
favorite long-term indicator, the 50-day EMA / 200-day EMA crossover,
was very late to the show also, and that is the nature of slow moving
averages. The 50 crossed above the 200 in early August but by then the
S&P 500 had already gained 50%. But if somehow the S&P can reach back
up to 2007 highs, it will have to gain another 50%. I don't know if
that will happen any time soon, but let's hope the EMA's keep us in the game
if it does.
The bull is certainly in full force and jumping in front of this train may
not be the smartest thing to do. That is, I wouldn't want to go short
(bet against) this market, but raising some short-term cash probably isn't a
bad option.
I'm not a big follower of
Fibonacci retracements
but if you are, you know that a 61.8% retracement of a market move is the
next significant target after the 50% retracement. A 61.8% retracement off
the March low of 666 is about 1078, and it is currently 1069. If you
are looking for an upside target for this rally, 1078 could be a reasonable
expectation. Like I said, I don't use Fibs too often, but anything to
give us some clues.
The market leaders, the Nasdaq and the Dow Transportation Index, have indeed
led the way, but where they go next is questionable.
The Nasdaq is in the same boat as the S&P 500 in that it is at the upper end
of its rising trading channel, and although it is rising, it could act as
some resistance here.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
The Transports had broken above the
rising wedge, which is a strong move considering that is a bearish
formation, but you can see that it has stalled a little lately and
yesterday, a day when the major stock indices were up 1.5% to 2.0%, the
Transports were not up at all. Perhaps this is a sign that we are due
for a short-term rest - which isn't a bad thing.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
I don't normally give out my TSP allocation here but if you remember I had
said the other day that because this is an options expiration week, we could
see the indices being help up this week, and that maybe next week (post
options expiration week) will be a good time to take something off the table
if you have gains to protect.
It would be nice to have a little cash (G or even F-fund) on hand to take
advantage of any 2 or 3 day pullback, particularly if it takes us down
toward some support areas. Normally in a market that is moving up
relentlessly I might slowly move out of my stock position instead of selling
all at once, but because we only get 2 transfers per month I don't want to
use 2 transfers to sell and not leave myself any transfers for the rest of
September to buy a potential pull back. If I did, I would have to wait
until October 1 to buy back in.
A drop will come, but whether it is a minor pullback or the start of a more
significant move down remains to be seen. Since we can move into the G
fund at any time, we can abandon a bullish bias if we see the charts
deteriorate with any breaks in support. Until then, the rules say you
buy the dips in a bull market.
That's all for today.
Thanks for reading! See you
back here tomorrow.
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