TSP Talk – 05/12/12

Charts breaking down while indicators turn positive

I’m going to start out with a chart of the dollar which has broken out of a triangle type pattern. This recent strength is a result of recent negative grumblings from the European economies.


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

Since the dollar’s successful test of the 200-day EMA at the beginning of the month, most markets have been struggling. When the value of the dollar goes up, it takes fewer dollars to purchase anything traded in dollars. That has affected price of oil, gold, wheat, corn, etc., and the CRB Commodity Index is down over 5% in the last week or two. It has also affected the price of stocks.

The S&P 500 has formed a head and shoulders pattern over the last several months, and in a bull market, head and shoulders pattern can break either way. It looks like this one has fallen through the neckline, and that is a bad sign technically.


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

Head and shoulders break downs tend to happen one of two ways, and we seem to be experiencing the second one right now as we’ve had a test of the head area.

The price of oil has also fallen pretty sharply, coinciding with the recent rally in the dollar.

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

The charts don’t look all that good, but as we had been posting most of last week, we are seeing some very positive signs from the indicators. When the charts and indicators are not telling the same story, I usually take the side of believing the charts, so this market has something to prove this coming week. Will the increasingly positive indicators help turn this negative market around? Or should we have just sold in May and gone away, like we were told?

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley
www.tsptalk.com
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