TSP Talk Blog

Stocks moved lower again yesterday, as the pullback off of Friday's negative reversal day continues. The Dow lost 117-points (0.7%), while S&P 500 and international stocks fell about 0.6%, and bonds gained 0.14%.

Daily TSP Funds Return More returns

Small caps started the day with some relative strength yesterday and traded in positive territory for a while, but once again turned into the laggard.

The SPY (S&P 500 / C-fund) fell below the rising wedge pattern and is sitting in the neighborhood of the July highs. As I have mentioned, I get a little more alarmed when the PMO indicators falls below the 10-day average for a second time in a short period of time, as we recently saw. The best thing for the market right now may be to continue the choppy action that we talked about happening two other times this year after a breakout. That would likely make the PMO indicator bounce above and below the 10-day average, which is better than a double sell signal.


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

The Dow fell below the double top highs and that makes this a failed breakout - unless it can quickly recapture the 17,150 area.


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

The Wilshire 4500 (S-Fund) broke below the intermediate-term rising support line. This looks pretty bad, but we saw a similar formation in late July that turned out to be very close to a low. Can it survive another sharp pullback without giving us a 10% correction?


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

The Russell 2000 (small caps) fell below the 200-day EMA on Monday, and yesterday it fell through the rising support line. This is the area that we would be looking for a bottom if the setup of the prior two lows repeats itself. It made a lower high in early September. Now we have to watch to see if it moves below the early August low which create an official downtrend.


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

The EFA (EAFE / I-fund) fell below the 200-day EMA yesterday and the next test of this pullback would be the early August low. This is not a pretty chart but a double bottom would not be out of the question so if this index can stabilize this week, we could be seeing a buying opportunity. If it breaks down that is a big warning sign, but it won't mean a relief rally isn't possible.


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

The AGG (Bonds / F-fund) was up and is now testing the important 20 and 50-day EMA's resistance. If the downside is going to continue in bonds this would be an area that the relief rally would end.


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

The market indices are capable of bottoming and giving us at least a relief rally, but be careful playing the long side. Whenever stocks fall and no one seems to be able to put their finger on why, it means something is in the air. The glaring example I give is when stocks fell 10% during the 2-weeks BEFORE September 11, 2001, but there were other, less serious examples over the years.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the Sentiment Survey Results and its TSP and ETF Systems. 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

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.