TSP Talk Blog

The stock market is coming off of one of the wildest weeks that we have seen since the 2008 bear market, and August has been one of the roughest months since the end of last summer. The Dow lost 12-points on Friday but it had to bounce back from a couple triple digit losses during the day so the buyers were stepping up, and they did so into the close.

Whenever volatility is as high as it has been it isn't just a matter of buyers and sellers battling over what the price of a stock should be. Rather it is more of investor sentiment struggling within themselves to determine their level of fear and greed. When stocks sink dramatically then rally with equal explosively, there is fear on both sides. There is the obvious fear of losing money, but there also the fear of missing out on a rally, and the prices will swing wildly until stability comes back, and that could take some time because nothing has been decided yet.

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The small caps led the way on Friday while last week's rebound in the dollar held the I-fund back in comparison to the U.S. funds. Bonds were off on Friday, as they seem to be struggling for direction.

China is still on the radar, as is the volatile price of oil, which has surged up with stocks the last few trading days. We got a stronger than expected GDP revision last week and that helps, but it also gives the Fed some fuel to raise interest rates.

As I write this Sunday night, the Dow futures are down about 200-points but Sunday futures and Monday morning market openings are usually triggered more by emotion and you never know how that will translate into a closing price on Monday. Does anyone remember last Monday's open?

The SPY (S&P 500 / C-fund) has rebounded strongly off of last Monday's opening lows and while there is some room to run technically, there is a lot of resistance overhead near the 20 and 200-day EMAs, and possibly the July lows. The big question that we always ask after a washout sell-off like we've had is whether we will see a "V" bottom or if we will go back and test the lows, and of course the lows don't always hold when tested, so there are many possibilities from here. It makes timing the market a lot of fun but mistakes can be costly.


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

The weekly chart of the S&P 500 shows the damage done last week and it closed below the 50-week EMA for a second straight week, something it hasn't done since 2011. But it close near the highs of the week creating a possible reversal "bar" or candlestick.


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

The Dow Completion Index (S-Fund) is in a similar situation, but the small caps have been lagging overall although they led on the upside on Friday. There are so many problems here on this chart but they had gotten so oversold and relief rallies can be quite explosive, as we've seen.


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

The Nasdaq looks like it will be be the first major index to test its overhead resistance as it nears an open gap and the top of that gap coincides with the 200-day EMA.


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

The EFA (EAFE Index / I-fund) has been lagging and the strength in the dollar during last week's rally at the end of the week has held it back from gains we have seen in the C and S-funds. This is looking like a possible bear flag (blue), which don't usually end well, but if it can continue higher from here and break above the July lows, it would go a long way in negating that flag.


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

The Chinese Shanghai Index remains on the radar and the chart remains broken, but relief rallies can be strong. I'm curious if the recent rally is going to turn into another bear flag after it broke down from the big red bear flag(s).


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

September is the worse month of the year historically but this chart, which goes back 30 years, actually shows quite a bit more green days than I would have expected. Nothing huge with a lot of the green bars being just barely above the 50% level, but only 4 red bars is a little surprising.


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


This chart shows the 62 year span from 1950 - 2011 and you can see September - not so good.


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

The AGG (bonds / F-fund) was down on the day on Friday and closed below the 50-day EMA again. It looks a little bearish with a possible head and shoulders forming, but it is still within the rising trading channel.


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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