Resistance in multiple time-frames

Good morning. It’s your weekly dose of TSP Talk.

The market was relatively flat for most of the day on Friday, but that all changed in the last half hour of trading when a flurry of buying kicked in. The major indices ended the day up over 1% again and the Dow, which had already had 3 consecutive 100-point daily moves (up, down, up) behind it, ended the day up 97-points.

The Nasdaq made a new multi-month high of 1774 late Friday, and that seemed to trigger program buying as the indices just took off. The Nasdaq has been doing well and we must keep an eye on it, but the other indices are still trying to negotiate the overhead resistance.

The S&P 500 closed at 919 on Friday, and as you can see below, there is some serious resistance between 920 and about 945 (even as high as 1000, as I’ll discuss below). Some of it is rising, and some falling.

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

I don’t know what kind of an impact GM’s bankruptcy will have on the market since it has basically been a foregone conclusion for some time now, but there has to be some collective sigh of disappointment from the world of capitalism as the government takes ownership of 72% of the country’s largest auto company.

If you had the pleasure of being invested in stocks during the 1995 to 2000 ramp up, I hope you also had the foresight to take some profits along the way. After the 1987 crash, the market bottomed and started an orderly bull market run until mid-1995 when things moved into another gear. The dot com boom was a big part of that and many people became overnight millionaires owning companies that were making little no money.

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

As you can see in the monthly chart of the S&P 500 above, the 2000-2002 bear market ensued taking the index back to reality and it found support at the old ’87 – ’95 resistance line (old resistance usually turns into support.) That also happened to be where the 200-month moving average was sitting.

The market took off again in 2003 and the rally lasted until late 2007. We are still in the throes of the current bear market that has taken us from a test of the all-time highs over 1500 on the S&P 500, all the way down to 666. This decline took out both the 200-month moving average, and that old resistance line that turned into support in 2002.

Now the S&P is bouncing back and the market has had a great run for the last three months, but the resistance going forward for the long-term outlook is quite thick. We saw it on the daily chart up above, and there it is on the monthly chart as well. It is going to take some very strong action in stocks to move much higher from here.

I would say that the 200-month moving average near 1000 is a possibility, but any move higher from here would only serve to lure in the smaller “dumb money” while the smarter money takes their profits. We have already seen this on several indicators.

Again, I will watch the Nasdaq, one of the market leaders, to see if its recent new high has any significance, or if it is just another carrot for the small guy to follow.

The TSP Talk Sentiment Survey System reiterated a sell signal after last week’s poll results of 1.07 to 1 bulls (44%) to bears (41%) ratio. Until the 50-day moving average on the S&P 500 moves above the 200-day moving average (on the daily chart), any ratio over 0.99 to 1 is a sell signal.

Thanks for reading! The TSP Talk Market Commentary is updated daily on www.tsptalk.com.

Tom Crowley