Let’s first talk about the S&P 500 or SPY and why I have 2 charts for the same index. What I have to show you this week can only be shown or explained if you look at the weekly and Daily chart. This was a good week for the SPY and for the market overall. Looking at the weekly chart first that is on the left, you will see that a new pivot low was confirmed, that was setup 3 weeks ago. Without a pivot low, you cannot begin to have a trend reversal. We also broke above the downtrend line that has been running now for 12 weeks. The RSI also bounced once again above 50. All of this information by itself just means things are looking better, but will we have a trend reversal indicating that the market will be going up? Well the daily chart is like zooming in with a microscope to see the finer details and what I see happening is very promising. Do not get caught up with all the moving average lines that I have on this chart, because I just use them to help me confirm the more important details. The details that are important here are the pivot lows and higher pivot lows.
So many great things happening here, let’s talk first about the pivots. The first pivot low was established 7/1/10 and by itself it doesn’t mean a lot. What you need is a higher pivot low to begin a trend reversal. On 7/22/10 the pivot from 7/20/10 was confirmed and it was higher than the last. This is a good start. There is more needed to confirm a real reversal. Jumping to early, we might get lucky and we might get burned. Today we cleared the downtrend line and the RSI jumped above 50. All good, but what more? What we need to happen now is for the market to pull back a bit and create a pivot low higher than the last and be above the downtrend line. It would also be required for the RSI to be above 50. If all this happens then the weekly chart will likely show the closing bar above 50 and we will be good to go.
All of the above information is a good thing and we might be in an uptrend soon. Keep in mind we need it to go up a bit more, pull back, and then back up to create a pivot. So don’t go throwing money at the C-fund or stock market quite yet unless your a betting style person. Compare the charts and draw your own conclusions.
The Small Cap, $DWCPF, and or S-fund made the same basic advances as the SPY above. The weekly chart confirmed a new pivot low. It also made a nice break above the downtrend line and almost cleared the 50 week ma. This index has been the strongest since the first of the year, but it has has gotten beaten up a bit since May.
Now let’s take a look at the daily chart to see if maybe there is new underlying trend forming much like the SPY. The answer is yes, we have 2 confirmed Pivots low which the later is higher than the other. The trading bar cleared the downtrend line. The RSI on the weekly and Daily are both above 50. All we need now is one more pivot low formed above the downtrend line and we will have a confirmed breakout to the upside. If you have been following along for awhile, you know I never bailed from my S-fund position, so I have been riding this uphill struggle all the way.
The European index, EFA, and or I-fund has been pounded since January, but the last 4 weeks it has made steady progress back toward an uptrend. Still to early to jump back in, but looking at the weekly chart you will see that progress has been made. The RSI is just below 50, the weekly closing bar is just below the 50 week ma, and we have 2 pivot lows. The pivot lows are a little weak but the last is higher as needed to reverse the downtrend. The last piece of good news on the weekly chart is that the closing price bar, cleared the downtrend line.
The daily chart for the EFA is looking very promising as well. We have a pivot low then a higher pivot low. We closed above the downtrend line and the RSI on this chart is above 50. Just like the SPY and $DWCPF, we really need another pivot low higher than last and it is formed above the downtrend line. When this happens, we should have a trend reversal on all 3 indexes.
Next week more earning reports will be coming out so who knows how things will run. What we do is follow the trends and make our decisions based on them. I made no changes in my TSP distribution this week and if things continue as they did this week, next week, we could have move back into the markets soon.
TSP distribution: F-fund – 50%, S-fund 30%, G-fund 20%
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