TSP Talk Blog

The downside continued on Monday and we are now seeing the tests of the August lows play out. The Dow lost 313-points as concerns over the state of the global economy have risen with signs of a slowdown popping up in various data.

Some indices, like the small caps, have now fallen through those lows and they cut through that support like a hot knife through butter. Technically it is a breakdown, but sometimes the lows have to get taken out, along with the stops placed by traders, before we get a bottom. Fear is not as high as it was during the "flash crash" on August 24, but that may be a case of the frog in a pot of slowly boiling water analogy.

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The losses were steep across the board with the small caps taking the brunt of it. Bonds rallied.

The SPY (S&P 500 / C-fund) is on a path to testing the August lows, but it has been down 7 of the last 8 days so a relief rally could be close at hand. But we're in a bear market and any time you are in stocks during a bear market you are bucking the trend and your account is more vulnerable. So, if you are a buyer of any of these declines, I suggest being nimble until we start seeing the damage repaired on these charts.


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

The Dow Completion Index (small caps / S-Fund) fell through the August lows and so far this test has been a failure. This chart could help itself by quickly recapturing that breakdown level. Whenever we see a breakout or breakdown I have a 3 to 5 day rule before confirming that break. If it can recapture the breakdown level within those 3 to 5 days, we can call it a fake out.


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

The Dow Transportation Index has been in a bear market for months and it has been an example of what bear market action is like as every rally has been sold since that breakdown in May. The question now is, will the S&P 500 follow the path of this market leading Transportation Index and stay buried in a bear for months?


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

The EFA (EAFE Index / I-fund) made a new intraday and closing low yesterday so the situation is the same. We should give it a few days to try to reclaim that breakdown level before declaring it dead.


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

The VIX is back above 25 for the first time in a few weeks, but it is still well off the highs made during the August 24 panic sell off. Hence the frog analogy above.


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

The AGG (bonds / F-fund) was up as investors ran from stocks and looked for safety.


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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