tsptalk.com Technical damage in the charts, no matter what the r

The easy part of the rebound may be over

The recent large moves in the indices made yesterday's 213-point gain in the Dow look small on the chart, but of course a 2% gain is nothing to sneeze at. Volatility is alive and well so don't get too comfortable yet.

For the TSP, the C-fund gained 2.18% yesterday, the S-fund jumped 2.84%, the I-fund was up 2.53%, and the F-fund (bonds) lost 0.22%.

The S&P 500 picked up another 2.2% yesterday and has now gained 7% from the lows last week. In the long run, it looks like the S&P 500 is trying to establish a bottom, but there are some big concerns with this current rally. For one thing, the volume has fallen off while the index has climbed. The 20, 200, and 50-day EMA's could act as resistance should the rally continue, and we have a couple of trend lines that will come into play.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

One trend line is near 1260 and could be a tough nut to crack - if we get there - but if we do get there, it is about 5% above where the S&P closed yesterday so that would be welcomed by the bulls.

The other trend line is the short-term declining line connecting the recent highs, and the S&P is testing that right now.

As I have been saying, when a market falls sharply, it rarely just starts rallying again without a few setbacks first.

Do you remember last year's "flash crash?" On that infamous day in May of 2010, the Dow fell precipitously in a matter of minutes. At one point in the day the Dow was down 1080 points before rebounding almost as quickly, but it did close down about 350-points

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The significance of that was that the explanation of the drop was that it was a technical glitch. If that was the case then the quick rebound seems reasonable and two days later, all of the losses were in fact recouped and the S&P was actually higher then when the crash began.

So why then, did the market head straight down again and, not once, not twice, but several times over the next 3 to 4 months the S&P 500 retested that area, and lower.

Technical damage in the charts, no matter what the reason, takes repairing and a "V" bottom rally with no re-tests of any kind is not usually stable. We do see "V" bottoms, but they usually come after an initial low and a test.

That said, we have had technical damage done to the S&P 500, and the market leaders, the Dow Transportation Index and the Nasdaq.

Both of the leaders have a big bear flag to deal with, and the pennant portion of the flags are forming a rising wedge, which usually break to the downside. And like the S&P 500, the volume has been lighter on the way up, than it was on the way down.




Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Last week I mentioned that I get concerned when an extreme oversold reading on the NYSE overbought / oversold indicator moves back to neutral or slightly overbought. The recent rally has now pushed the indicator to the top of the trouble area of this indicator.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

These initial rallies off of an extreme oversold readings tend to bring in sellers looking to take profits.

I was one of the investors who lost money on the way down, and I would love to see the market give back those losses, but again, the easy part of the rebound is possibly over. The bears seemed to step aside for a few days but they will not give up that easily. I believe the bulls will be tested a little more by the bears going forward. We may have seen the lows, but that doesn't mean we won't revisit them again.

Should the market head straight up from here, I will stand corrected. It will be the exception, not the rule, but I guess anything is possible.

Thanks for reading! We'll see you back here tomorrow.

 

Tom Crowley