TSP Talk Blog

Another sell-off on Wall Street Wednesday and investors are starting to feel the pain. The Dow lost 238-points while the Russell 2000 hit correction mode being down 10% from its early July peak.

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The I-fund held up a little better than the U.S. funds and bonds (F-fund) soared in the nervousness of the stock market sell-off.

The S-find and the I-funds are both negative for the year, while the C-fund is still up about 7% in 2014.

Historically, when the first trading day of October fell 1% or more, the next day was positive 8 out of 10 times, the next week was positive 7 of those times, and the rest of the month was positive 8 of 10 times.

This morning we get the initial jobless claims report, which seems to get more attention when released prior to the monthly jobs report, which comes out tomorrow, so it could be a market mover this today.

Back on September 22 I posted this chart looking at what could have been considered an inverted head and shoulders pattern. We were coming off a small failed breakout and I opined that we could either breakout above the rising neckline, as inverted head and shoulders tend to do, or we could see a test of the middle of the head - something else that an inverted H&S can do.


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

I kind of haphazardly drew the middle if the head above without any precise measurements so it was the idea of the size of a potential pullback.

Well, now we've seen a pullback to that line and even a little beyond, and if this is truly an inverted H&S pattern testing the middle of the head, perhaps it's near some support. As a matter of fact, there is a rising support line (green) on the SPY (S&P 500 / C-fund) that is now in the 194 area that could also help. But when stocks are falling precipitously, they can fall further than seems reasonable. So the head test support and rising support line is a possibility, but emotional selling could always cut through these support levels.


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

The weekly chart of the S&P 500 is now at the bottom of a long-term rising trading channel. The Russell broke through its trading channel a while back while the S&P 500 has been able to remain within it. What will it do now?


Chart provided courtesy of www.stockcharts.comm, analysis by TSP Talk

The Russell 2000 (small caps) is the main story as it has been lagging badly, and yesterday became the first major index to hit the 10% correction mark. But take a look at this. The Russell peaked after the first trading day in July. It bottomed on the first trading day in August. It made another peak on the 2nd trading day in September. Interesting. If that pattern continues, could we see a bottom here on the first of October?


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

The Wilshire 4500 (S-Fund), which is a small and mid-cap index, did basically the same thing.


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

When you combine that with the historically strong results in Octobers during mid-term election years... well, I'll let you come to your own conclusion.



The EFA (EAFE / I-fund) is still falling sharply since breaking below the 200-day EMA. The European markets are not doing terribly, and Japan's Nikkei is actually near recent highs, but the strength in the dollar has magnified the problem here. The questions is, if and when the dollar will cool off.


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

Here's that chart of the Nikkei, which is near the highs, but it did actually break below a short-term rising support line.


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

The AGG (Bonds / F-fund) ran up sharply yesterday and now it looks like it wants to fill that big open gap that seemed a million miles away just two weeks ago.


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


We get the September jobs report on Friday. Estimates are looking for a gain of about 205,000 jobs and an unemployment rate of 6.1%. The jobs report contest has been started in the Forum.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the Sentiment Survey Results and its 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 TSP Talk Market Commentary

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