TSP Talk Blog

Stocks opened sharply higher on Wednesday but by the close the Dow, which reversed 400-points, ended the day down 239-points. Japan's Nikkei had rallied nearly 8% the night before and that rolled into the U.S. and European markets on Wednesday morning, but things went sour as we saw.

As I write this Wednesday evening the Nikkei had not yet opened for trading, but I suspect the 1300+ point rally yesterday is going to get quite a haircut.

Oil was also a catalyst as it fell about 3.5% and continues to pullback from resistance.

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The I-fund was spared some of the afternoon dramatics by U.S. stocks yesterday, and bonds were up yesterday.

The SPY (S&P 500 / C-fund) opened sharply higher but the pull of that open gap proved to be too much and 400 Dow points later, the SPY nearly filled that gap. There has been some talk about whether the flags on the charts are bull flags or bear flags since some have their pole above the flag, but some have one both above and below. I think after yesterday's action, the bearish case is most compelling with the potential test of the August lows, but a breakout to the upside above resistance would be enough to convince me that I'm wrong. It's not a question of if the market bottoms, but when. And the buying opportunity could come at any time, but how much damage might be done in the interim?


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

The Dow Completion Index (S-Fund) hit the 20-day EMA and pulled back and that coincides with the top side of what I believe could be a bear flag.


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

The QQQ opened above the 200-day EMA and I was hoping it would fill the gap (red) and test the 50-day EMA, but it failed before it got there. I checked the 200-day Simple moving average and it sits within the open gap.


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

The EFA (EAFE Index / I-fund) lost 0.40% but the European and Japanese markets haven't really had a chance to react to the U.S. market's negative reversal. There's a big gap near 58 and I suspect that could be tested today.


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

The Japanese Nikkei gained an incredible 1343-points on Wednesday, or 7.7%, but how much of that will be given back should they react negatively to the U.S. reversal?


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

Oil peaked at the end of August and the 50-day EMA has held as resistance in this bear market, after several attempts to break above it. But could that be a bull flag?


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

The AGG (bonds / F-fund) opened lower and broke below some key support before rebounding and closing slightly higher as stocks tumbled off their highs.


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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