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A lull before earnings

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Stocks pulled back on Friday and filled some gaps left open after Thursday's rally. The Dow lost 131-points and the broader indices lost between 0.3% and 0.7%. Despite the losses, the C, S, and I TSP stock funds all had strong weeks gaining 1.2%, 2.2%, and 3.2% respectively, while the F-fund (bonds) gained 0.54%.

Daily TSP Funds Return

It was a busy week with the highly anticipated FOMC meeting and Fed deciding to not make a move on interest rates this month, while the Bank of Japan was making a move to try to spark some inflation, and the global markets seemed to like it, despite the modest pullback on Friday.

Tonight's presidential debate has the potential to be a market mover, if for no other reason than there's really nothing much on the calendar to excite investors until we get into October and 3rd quarter earnings start to roll in. As I mentioned last week, the market is a little concerned about Trump doing well in the debate since he is more of an unknown to the markets, and the markets are not big fans of uncertainty. But any selling that we see could be short-lives as dip buyers don't seem to want to wait much to jump in.

The SPY (S&P 500 / C-Fund) pulled back to fill the open gap from Thursday's rally. That's a healthy move so far since we know gaps like to get filled, but there isn't too much room below before any more selling could bring up a problem. So, look for the bulls to try to defend 215 area should we get more downside action. Otherwise, the chart looks pretty bullish for now.

The weekly chart shows the pullback test of neckline of the large inverted head and shoulders pattern has held. So far this is classic H&S action and appears bullish. If the neckline does breakdown, then the story changes.

The DWCPF (small caps) filled its overhead gap on Thursday (blue) then pulled back on Friday like the other indices, but it didn't fill its open gap (red) yet. That is still a potential downside target unless the bulls start buying again at which point it may turn into a "breakaway gap" - something we saw in June, although we don't usually see a pullback right after a breakaway gap.

The Dow Transportation Index also filled a tiny gap after Thursday's negative reversal day. These negative reversal days can be satisfied with a negative day like Friday, but that was a big kangaroo tail and that may be a little more trouble as it looks "toppy." However, support is fairly strong between 7800 and 7900 so I suspect buyers won't let it break below that area.

The weekly chart of the Transports shows a large bullish flag formation that is nearing an apex. Conventional wisdom would say a bull flag would break to the upside, but we can see the lines in the sand on both sides so we could have an answer soon.

The EFA (I-fund) made a brief intraday new high last Thursday but it too succumbed to the pull of the open gap. Double tops like this can be a temporary road block, but this chart overall looks fairly bullish.

The AGG (Bonds / F-fund) was flat on Friday after the big two-day, non-rate hike rally. It's back within the large flag formation and there is a small open gap near 112.

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

Tom Crowley

Posted daily at TSP Talk - Market Commentary

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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  1. uscfanhawaii's Avatar
    I felt like I was in the Twilight Zone....commentary listed as Aug 26 instead of Sep 26, but it sure looked like it was the Sep 26 commentary.
    Then I get down to the monthly chart from SentimentTrader and that said Aug too, but that one really did look like Aug.
  2. tsptalk's Avatar
    Laptop time warp. It's fixed now. Sorry and thanks.

S&P 500 (C Fund)
DWCPF (S Fund)
Dow Jones U.S. Completion Total Stock Market Index (^DWCPF)
EFA (I Fund)
iShares MSCI EAFE Index (EFA)
AGG (F Fund)
iShares Lehman Aggregate Bond (AGG)