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Breakdown, but possible reversal day

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4/24/12

Political uncertainty in Europe, and the economic slowdown in China sent stocks reeling on Monday. The Dow lost 102-points on the day, but did manage to close 82-points off of the morning lows.


For the TSP, the C-fund was down 0.84% yesterday, the S-fund lost 1.25%, the I-fund dropped 1.89%, and the F-fund (bonds) gained 0.12%.

Yesterday we posted this: "Historically, the Monday after April's option expiration week is quite weak. According to sentimenTrader.com, over the past 20 years, the S&P 500 futures have been positive the day after April option expiration (the third Friday of the month) only 30% of the time. However, from the next Monday's close through Friday (meaning from the close of 4/23 through 4/27 in our current case), it was positive 80% of the time averaging +0.8%. The last 8 years have all been positive during those 4-day stretches."

So, on queue, we got the weak post-options Monday. Now we'll have to see if the stronger historical numbers work for Tuesday trough Friday.The S&P 500 only lost 0.8% by the close, but the intraday technical damage will need some mending. The 7-month ascending trading channel was broken, and the S&P is now 5-points below the 50-day EMA.


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

The "h" type formations are pretty concerning but it is still above the early April low, and that is at least something for the bulls to hang their hats on. The dashed blue descending trendline below will not be official until, and unless the April low is broken. For now, the bulls are looking for that support just below 1360 to hold, and for the index to get back above the 50-day EMA.


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

As I have said many times, when a support or resistance line, or a major moving average, is broken I like to give it 3 to 5 days to confirm the break. But sometimes, especially in very weak markets, a lot of damage can be done in those 3 to 5 days.

The Nasdaq lost 30-points on the day, or 1%, but it actually closed near the highs of the day, whcih created a rather interesting reversal day. Reversal days tend to follow through in the direction of the reversal, and with the good sized gap left open with yesterday's sell-off, it wouldn't surprise me to see the index move back above the 50-day EMA in the next day or two and close that gap. What happens after that will be the question, but getting back over the 50-day EMA again will be a good start.


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

The earnings reports will be rolling in this week with Apple's important report coming after today's close. It is important because the Nasdaq is heavily influenced by what happens to Apple's stock price so a strong report would help the technical picture while a let down could prolong the market's pullback.

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

Tom Crowley


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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