TSP Talk Blog

What a day for stocks on Wednesday. After falling 277-points within the first hour of trading, the Dow climbed its way back into positive territory just before the close, before ending the day down 33 cents. The indices were mixed with the S&P 500 and Nasdaq closing in positive territory, while the small caps and Transports were in the red, but all rocketed off their lows producing positive reversal days.

You would think that momentum would be positive after a reversal like that, but history suggests that the following day isn't always that easy and can be tricky. A reversal like that is often triggered by short covering and we'll have to see if those bears who covered their bets against the market, jump back in on the short side which could put some pressure on at first. But these kangaroo tail reversals do usually mark a short-term low, if not more.

Daily TSP Funds Return More returns

The morning losses were not quite made up in the small caps and I-fund. The Asian and European markets had all closed by the time the U.S. indices bottomed and reversed. Bonds reversed down from early gains and closed slightly negative.

The SPY (S&P 500 / C-fund) closed slightly positive yesterday after a dreadful morning of trading. Technically it was able to close above the support line of the inverted head and shoulders shoulder support line (blue dashed), although intraday the support line was shredded during some capitulation. It also successfully tested the 200-day EMA again. The relief may or may not be temporary, but these kangaroo tails tend to provide more upside momentum in the days ahead, although as I mentioned above, today may get tricky just to keep us guessing as the bulls and bears decide where they stand.


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

The Dow Completion Index (S-fund) held above that descending support line, which isn't a great feat, but it actually closed above the 200-day EMA again, which means it has still only closed below it twice despite several intraday breakdowns.


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

The story is the same for most charts although the Transports, which have been in a bear market, rebounded after breaking down badly from a bear flag. That's kind of interesting action for a bear market. There's some work for it to do, but this could be a second higher low since the early June low.


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

The EFA (EAFE index / I-fund) was able to reverse up despite the overseas markets being closed while the U.S. indices were reversing highs. The dollar was also sharply lower so that helped the I-fund.


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

Here's what the German DAX did during the sell-off, and you can see it closed at the low about a half an hour before U.S. stocks bottomed. So it looks like the 200-day EMA is going to hold again.


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

Today is trading day #9 in August so we're at the end of the negative seasonality for the month. The first half of the month was a doozy as advertised. Now let's see if the second half lives up to its more positive billing. Volume tends to shrink in the final weeks of the summer with many on vacation, so like holiday trading, the bias tends to be positive.


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

The AGG (bonds / F-fund) closed nearly flat after a positive morning as money flowed from bonds back into stocks in a hurry. If China devalues again, you never know what might happen, but bonds would likely go up again.


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


Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the 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 www.tsptalk.com/comments.php

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.