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Stocks opened the post-holiday week in negative territory, but climbed back into the green by early afternoon before falling into the close. The losses were modest but accelerated late producing another weak close - a trend that started last week. The Dow lost 78-points, the small caps were hit hard, and the Transportation Index actually closed in positive territory.

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Last week we focused on the holiday reversal theory, and as some indices were rising while approaching the apex of a rising wedge, the holiday reversal theory would suggest weakness to start the post-holiday trading, and that's what we saw on Monday. The seasonality after Thanksgiving weekend is historically weak, but this year the post-holiday week started during the first week of December, which has a somewhat positive bias.


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


The S&P 500 (SPY) reached the end of its rising wedge last week and on Monday finally broke down, which is what a rising wedge is "supposed to do" and what we expected it to do, but the continued strength in the market had me nearly doubting the technical analysis since it took so long. One down day does not mean all that much, particularly in the strongest month of the year, but there are no guarantees that the market can't go down 5% to 10% in December before we get some kind of a Santa Claus rally.


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

The small caps fell sharply as the Russell 2000 lost 1% on Monday. It has been doing very well and there is some support just below on this Russell 2000 ETF chart near 111.50 so this is not a bad chart at all.


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

The Dow Transportation Index closed the day slightly higher and remains in its rising wedge. This is normally the leader so we may find out today if the leader is going to follow the S&P 500 in a breakdown below the wedge.


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

Bonds were down sharply yesterday and we are seeing some ominous looking formation on these bond ETF charts. That doesn't mean bonds will break down, but that's the way it looks at the moment.


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

Both of these charts have a form of head and shoulders pattern, but the 7 to 10-year ETF is now testing the neckline support of a big head and shoulders pattern, which tend to break down. On occasion, the head and shoulders patterns will bounce up to test the middle of the head before breaking down so at this point it could go either way, but the this first scenario below is the more common outcome...


In today's TSP Talk Plus Report we take a look at the dollar, the short-term indicators, and the option's traders speculation chart. 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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