TSP Talk Blog

04/16/13

It's been a while since we have had a day like yesterday. Stocks tumbled 2% to 4% and gold saw another 9% decline on the day. The Dow closed down 266-points while small caps and the Dow Transports were hit even harder.

I know many who were not watching the news and market closely yesterday afternoon, might think stocks sold off on the news of bombs exploding in Boston. But there was only an hour to go in the trading day when the attack took place, and stocks were already on their way to a terrible day. Our thoughts and prayers go out to the victims and the families affected by this heinous act of terror.

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The market initially sold off on some weak economic data, and a slowdown in China.

The S&P 500 (SPY) fell right down to the bottom of its trading channel. Here's an immediate test of the short to intermediate-term rising trend.


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

The Dow Transportation, which is very economically sensitive, sold off hard on the weaker than expected economic data, including a poor housing report, trouble in China, a sharp drop in the New York Fed's "Empire State" index - it dropped to 3.05 after a reading over 9 in March and estimates were looking for 7 - but we may not get the real story until the big money have a chance to sell.


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

Like the SPY, the nearly 4% drop in the Transports ETF IYT, down to a possible make or break rising support line.

Small caps did break below their rising support line, but we expect more volatility in this index and while support and resistance lines do matter, I'm more inclined to watch the S&P and Transports for a better indication of the technical picture.


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

One of our forum members (bmneveu) pointed out that a "Hindenburg Omen" signal was triggered yesterday. While about 8% of the time these are false alarms, much more often than not they precede some nasty stock market declines.

Major Crash - 27% probability
Selling panic of at least 10-15% - 39% probability
Sharp decline of at least 8-10% - 54% probability
Meaningful decline of at least 5-8% - 77% probability
Mild decline of at least 2-5% - 92% probability

Read more at: Albertarocks' TA Discussions

After filling the open gap last week, bonds have found support and are now testing the recent highs again. If stocks are falling, investors look for somewhere to put their money.


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

Gold did become the falling knife yesterday dropping another $135 an ounce, or more than 9% on the day. The gold ETF (GLD) shows the crash playing out after it broke below some long term support that goes back to 2011 on Friday.


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

The sell-off in gold is apparently due to deflationary conditions, and I believe the severity of the selling is due to some panic selling, and also from those who are in too deep and may be getting margin calls on their losses, forcing them to come up with more cash or sell.

As we've been saying, sentiment among the dumb money surveys and indicators has been very bearish considering the market being near all-time highs. For that reason I am thinking another snap-back rally could be in the cards, but the chart formations come first and support levels must hold for me to buy in for a trade. If we start seeing support breaking down in more of the major indices, I will stay in my defensive mode. Plus that Hindenburg Omen signal always scares me.

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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