TSP Talk Blog

Breakdown

We saw a nice two-day rally to end the week last week, but a lot of damage was done during the prior three days of trading and if the major indices cannot continue to add to on Thursday and Friday’s rally, I’m afraid we may have witnessed a breakdown.

For the TSP, the C-fund lost 1.91% on the week, the S-fund lost 1.21%, and the I-fund gave up 2.67% as Japan’s stock market, which makes up about 25% of our I-fund, was hit terribly hard after the earthquake.

The F-fund gained 0.38% last week as investors looked to bonds for safety. The G-fund picked up 0.06%.



For the month of March, the C-fund is now down 3.64%, the S-fund is off 3.21%, and the I-fund has lost 6.04%. The F-fund (bonds) is up 0.61%, and the G-fund has gained 015%.

After breaking to the downside of a triangle formation (red lines), the S&P 500 entered last week hanging onto the 50-day EMA. By the end of the week the S&P fell through the 50-day EMA and that is big technical breakdown. The relief rally we saw on Thursday and Friday is typical action after a sharp sell-off, but the old support areas that were taken out on the way down, may act as resistance on any rallies.


Chart provided courtesy of www.decisionpoint.com

That is the test going forward for this week. This is a lot more complicated than it might look. Trading below the20-day EMA and the 50-day EMA is a warning sign. But the 20 is still above the 50, and both are above the 200-day EMA (not shown but sitting at 1213), so officially we are still in a bull market and in a bull market we should anticipate a bullish outcome. But we have now had a lower high and a lower low on the chart and that means a new downtrend.

The Dow Transportation Index is considered a market leader so we like to watch it closely. There are some good signs and some bad here. If this index cannot move back above the apex of the triangle very soon (light blue lines) , then I would expect that the bear flag (red), which has broken down, will see a resumption of the downside.


Chart provided courtesy of www.decisionpoint.com

The 20-day EMA has crossed below the 50-day EMA on this chart and that is a warning sign, and if the leader is flashing warning signs, the rest of the market better be on guard.

The new developments in Libya will have an impact but what happens over the next few weeks is anybody’s guess. We have certainly been given enough warning signs that continued downside action should not come as a surprise. I believe we have to be very careful here and look at rallies as opportunities to sell, unless the S&P 500 can recapture the 50-day EMA very quickly.

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

Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive

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