TSP Talk Blog

Stocks dropped sharply on Monday with most of the weakness coming at the open and into the close. We saw some midday buying, but the steady decline into the close shows the nervousness of investors to hold overnight as the news gets less optimistic each day. The Dow lost 136-points on the day.

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The results of our Sentiment Survey last week showed just how bearish and nervous investors are. In general, excess bearishness is a good thing for stocks, but the threat of default is unfortunately somewhat of a reality at this point, and perhaps there is reason to be bearish?

The charts are still holding up, but after yesterday's action, they're hanging on by a few threads as the 50-day EMA is being tested again on several indices. The weak close yesterday left a lot of negative reversal bars on those charts. The bulls are just hoping that the weak day yesterday means a bounce back today since we've been in a back and forth chop over the last several days.

The S&P 500 (SPY) closed just barely above its 50-day EMA. That's good, but a breakdown would be a warning. The bright side here is the very light volume considering the situation. There's not a mad rush for the exits yet.


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

The Dow has been lagging and trending almost straight down since the September high. It is still above some key support that looks like it will be tested imminently.


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

The volume on the Dow has been unusually low with this budget and debt ceiling fiasco going on. Again, this would indicate that there's not a lot of panic going on, and the big money is probably not doing much of the selling.

The small caps have held up well but if this consolidation, which is normally a pretty good thing, resolves itself like prior recent consolidations, it could mean a turning point for the Russell 2000 Index. That would not be very bullish, so the key here is the 20-day EMA holding, then there's the support from the high in August.


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

Investors opted for bonds yesterday during the stock market sell-off as we saw a mini breakout from the bull flag on the TLT long-term bond fund ETF. If the 50-day EMA continues to hold, it looks as though we could see another push higher in the bond market (and the F-fund), but with the debt ceiling negotiations faltering, that is rather surprising.


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

The stock market indices are at a point technically where they really need to bounce off of key support levels. Any dips below that could start to trigger stops and a little bit of panic. But investors are extremely bearish and that may be a cushion to stop any major sell-off from here.

In today's TSP Talk Plus report we'll look at several other charts including overbought / oversold indicator. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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