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Monday's gains erased

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Stocks opened sharply lower on Tuesday after a weak factory order report out of China giving more ammunition to the weak global growth argument. Also, Australia dropped their interest rates adding to the concern. The Dow lost 140-points, giving up Monday's gains.

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The world has become programmed to assume the Central Banks will come to the rescue. If they don't we could see another run for the exits, but they have been pretty persistent and we'll see how trusting investors are as the weak data continues to roll in.

There was some strong earnings reported after the close yesterday, but none were real market movers.

What I noticed yesterday was the reversal in many markets that had been trending strongly so the question is, was the reversal temporary or a sign of things to come?

The dollar has been falling for months, but rallied strongly yesterday.



Gold has been rallying strongly lately, and yesterday it pulled back.



Oil has been rising but also pulled back yesterday on the strength in the dollar.



So, was this just a day of rest for the dominant trends, or are we seeing a turning point? The trends are still intact so I'd say it is too early to say anything has reversed.


On Friday morning we get the April jobs report and estimates are looking for a gain of 207,000 jobs, and an unemployment rate of 5.0%. The Jobs Report Contest is now open in the forum. Click here for more info.


The S&P 500 (C-Fund) gave up Monday's gains and seems to have found resistance where the April peak's descending resistance line met the bottom of the old support line (red arrow). There are some troubling developments, but as long as it trades above the 50 and 200-day EMA's we should probably give the bulls the edge. If the bears can keep the pressure on and break that support, the market atmosphere would change to more unfavorable.




The small head and shoulders pattern is not necessarily bearish in a rising trend since they are continuation patterns. Large H&S's could produce market peaks, otherwise we need to see that neckline break on the small H&S before it turns bearish, and it is being tested now.

The DWCPF (S-fund) had a bad day on Tuesday and is flirting with the bottom of its rising trading channel and the 200-day EMA, which held yesterday. The 50-day EMA is still in the neighborhood near 1090, but the bulls better start buying here or it could get ugly.




The Dow Transportation Index also fell below the major moving averages before closing back above them. Another test that needs to hold because there is not a whole lot of support below those averages.




The EFA (I-Fund) closed below its 200-day EMA and that open gap near 57.50 that we have become obsessed with is being tested now. The bottom of that gap is where the 50-day EMA lies now, so that may be a strong draw for this index.




The AGG (Bonds / F-fund) broke out to a new high yesterday but pulled back by the close and ended right near the resistance line. There's a chance it is a failed breakout but bond buyers were willing to buy above that level at least temporarily while stock were falling. If the pullback in stocks continues it would be more likely that the breakout holds. If stocks reverse back up we could see bonds sold in order to buy stocks.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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S&P500 (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

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