TSP Talk Blog

Stocks slipped Friday leading into the weekend that could determine whether we see a government shutdown or not. The Dow lost 70-points, the S&P 500 and small caps were down, while weakness in the dollar helped lift the I-fund to a modest gain, and the bonds were up.

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As of right now, no deal has been made in Washington and the triple digit loss in the overnight Dow futures are showing trader's concerns, but it's the beginning of a new week and emotions are high.

The S&P 500 (SPY) can use a 2% drop from here to clean things up a bit. It would fill the lower open gap (red) and test the 50-day EMA. From there we'll see what the bulls have left and who's willing to buy another dip.


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

The longer-term S&P 500 chart shows the index is still pulling back from the resistance of the top of the trading channel. The PMO momentum indicator is showing a negative divergence as the index made two higher highs in the last couple of months, while the PMO has made two lower highs. Is the market getting heavy and tired?


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

The small caps are showing some wear as the IWM has had trouble getting above the 107.50 level over the last couple of weeks.


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

The mid-caps (not shown) are struggling even more as there is now a bear flag on that chart.

Bond yields slipped again on Friday and the 30-year Treasury yield has created a bear flag with the 50-day EMA just overhead to act as resistance.


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

This should be bullish for bonds, and as you can see on the longer-term bond ETF, there is a bull flag that is about to test the support of the 50-day EMA after breaking above it last week. There's a higher low, and now a higher high, and bonds look good technically at this point.


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

Perhaps this is a temporary lift triggered by the concern over the debt ceiling and potential government shutdown. If that's the case, the charts will tell us by seeing the bull flag and the 50-day EMA break break instead of acting as support.

As I wrap this up on Sunday night, the Dow futures are down 103-points. Not great, but certainly not catastrophic. That's not even 1%. My immediate concern is the similar setup that we had in August where we saw the S&P gapped down below the 20-day EMA to the 50-day EMA, which may be what we see on Monday.


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

The market didn't instantly rebound from that as it took about another two weeks before we saw a bottom.

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

Tom Crowley

Posted daily at TSP Talk Market Commentary

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