TSP Talk Blog

Stocks opened sharply lower on Monday as last week's sell-off carried over into the start of this week. Prices stabilized after the open but the buyers could not muster up enough strength to close too much off of the lows, and there was a failed attempt at a rebound during morning trading.

China's Shanghai finally gave way after a 2-3 week rebound off the prior lows. The Index lost 8.5% in Monday's trading and that seemed to be the catalyst for the global market sell-off.

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The S-fund continues to lag. If there is a weakening in the economy, investors tend to move more toward quality stocks and that usually does not mean small caps. But when the data are improving, the small caps tend to see a quick influx. We're obviously at the former situation. Bonds were up as investors looked for some safety.

The SPY (S&P500 / C-fund) was down on increasing volume, but it wasn't excessive volume like we normally see near pullback lows. Perhaps today will be a "Turnaround Tuesday" but look for volume to spike if it is a low. If we rally on light volume, it probably means more downside is to come.


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

The Dow Completion Index (S-fund) fell through the 200-day EMA on Monday. Not a deal breaker but a major warning flag. You can see the one in December quickly reversed to the upside so the bulls probably need a quick one this time too, or the bullish trend traders could start selling as well.


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

For once the Dow Transportation Index was not the index being most beaten down. Instead it lost a small (by comparison) 0.16% and held above the prior low. It may be too optimistic to see this as a positive, but we're looking for clues to the end of this pullback.


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

The EFA (EAFE index / I-fund) fell below the 200-day EMA as the sell-off in China seems to have impacted markets around the globe. That large open gap in the middle is trying to get filled and there is more room to go.


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

China's Shanghai Index lost 8.5% on Monday and while we focused on this during the first leg down, this second "crash" is getting more attention. Obviously this is something to keep an eye on.


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

The AGG (bonds / F-fund) not surprisingly rallied on the sell-off in stocks. The action wasn't a good gauge of the strength in bonds yet. That test will come if stocks reverse higher.


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


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

Tom Crowley


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