TSP Talk Blog

Stocks opened lower on Monday and fell to their lows within the first half hour of trading, but quickly stabilized and the bulls were able to hold off the bears from doing much damage. Tentativeness seems to be the order of the week as the Dow shed 62-points on light volume as the Fed's decision on interest rates looms.

Japan and China's markets struggled on Monday but the severity didn't roll into the U.S. indices.

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The I-fund lagged and bonds were basically flat.

Volume has been dwindling steadily in the market since the lows in August, and while we had a couple of big rallies since, the action has been more tentative lately. The SPY (S&P 500 / C-fund) is in a pennant formation and the apex is getting quite narrow indicating that a big move is likely on the horizon, and the Fed's FOMC meeting later this week could be the catalyst. There's always a chance of some big money trying to front-run the interest rate decision, or even an early leak of the possible decision.


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

The Fed rarely does anything that would hurt the market but this is a sticky situation. Investors like cheap money and low rates, but if the Fed does not raise rates this month, a month they've had in their sights for a while, what does that tell us about the state of the economy? I have no idea how the market will react to a hike or no hike because there are good arguments on both sides. If you are in stocks right now it may feel a lot like having your money on the roulette table while the croupier is getting ready to spin the ball around the wheel.

The Dow Completion Index (small caps / S-Fund) has the big bear flag on it and they usually break down, but if the Fed makes investors happy, we may not see a breakdown. But charts do tend to portend the next move so if I had to bet I'd say the news won't be to the liking of investors because of the bear flag.


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


The EFA (EAFE Index / I-fund) is also in a flag but even better than a flag is the open gap and if you've been reading these market commentaries for more than couple of weeks, you know how much we love to see, and anticipate, gaps getting filled.


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

The price of oil was down 1.5% yesterday, and while it is off the highs made at the end of August, it looks like a potential bull flag, and bull flags tend to break to the upside. The problem is, oil is in a bear market and remains below the 50-day EMA so it's tough to expect a bullish outcome.


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

The AGG (bonds / F-fund) has been trading in a tight range in front of the Fed. This looks like a bear flag too but more so indecisiveness from bond traders, which makes sense with investors waiting on the interest rate decision.


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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