Jobs Report Delivers

Good morning! It’s your weekly dose of TSP Talk. This market commentary is updated daily on www.tsptalk.com.

Although stocks finished well off of their highs on Friday, the jobs report initiated a strong rally as there were 78,000 fewer jobs lost than expected (-325K est. vs. -247K actual). The Dow gained 114-points and the S&P 500 (C-Fund) picked up 1.3%.

The other funds were mixed as small caps gained over 2%, but the I-Fund actually lost a half of a percent because the dollar also rallied on the stronger than expected jobs report . I bet you never through the market could rally 1% to 2% after 247,000 jobs were lost, but it’s all relative.

The S&P 500 did breakout over two resistance levels, but inched back down near it by the close. We’ll have to use the three closing price rule. If the S&P can stay above that resistance for three consecutive days, it is likely a real breakout – as opposed to a fake out.

Volume has picked up over the last couple of days, and the 50-day exponential moving average (EMA) is now just two points below the 200-day EMA. This inevitable crossover will be a very bullish technical move, but it could also be an indication of a short-term overbought condition.

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

There are actually many indications that the market is due for a pullback, but it has been that way for a few weeks now. There have been many people left behind in this rally in 2009 and they appear to be buying on any signs of weakness. Psychology tells us that the market will likely only pullback when the fewest number of investors believe it won’t. If you are on the sidelines thinking… This market may never pullback – I better just buy and get it over with… That’s when the pullback will come… and you won’t be alone in your thinking.

Looking at a longer-term chart, the declining bearish trendline is all the way up near 1200, so we could actually see a 20% rally from where we are now, and the market would still be officially in a downtrend. The line below that, running sort of parallel to the upper downtrend line, can actually act as resistance as well.

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

Support, once broken, could act as as strong resistance on the way back up. If you remember back in the early stages of the bear market, we had that large head and shoulders break that basically solidified the bear market status. Now that sloping neckline is in the way again and could act as some trouble for this newly developing bull market.

The Nasdaq has been acting much stronger than the S&P 500, which is a good sign for the market, but just as the S&P 500 is bumping up against that old support / now resistance line, the Nasdaq IS at the bear market downtrend line now!

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

This doesn’t mean it will not breakout, but there are several technical reasons to believe that the market might have to work harder to move much higher from here.

If the downtrend resistance is broken to the upside, and the 50-day EMA does successfully crossover, and remain above the 200-day EMA, then a new bull market will become official in my book. That doesn’t mean I won’t wait for a pullback to buy, but the long-term bear market will be ending, and a new bull market will be confirmed. It is what I have been waiting for – confirmation.

That’s all for today. Thanks for reading.

Tom Crowley
TSP Talk