TSP Talk Blog

Stocks rebounded strongly yesterday in what is either the start of a relief rally, or a successful test of the lows. It's too early to say. It could have also been window dressing as money managers try to put their portfolios in the best light to end the third quarter.

The Dow gained 236-points on the day and the gains were broad with many indices picking up 1.5% to 2% on the day.

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For whatever reason, possibly the fact that the government shutdown may have been averted, the futures started to jump as soon as they opened on Tuesday evening and went nearly straight up before sharp dip some 16 hours later. That dip was bought and the futures and cash indices closed near the highs.


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The SPY (S&P 500 / C-fund) gapped open higher and hit the highs of the day within an hour or so of the open. By about 1 PM ET the S&P dipped significantly, enough to fill that open gap, before the upside resumed and the bulls took it back toward the highs. You can see that the high hit a descending resistance line (blue) so there will be some work to do out of the gate today, but momentum like we saw yesterday is hard to slow down in just one day. The question of course is whether we have successfully tested the lows. The S&P 500 and Nasdaq didn't come very close to the August lows, while small caps and the I-fund did. A bear market rally doesn't tend to last more than about 2 to 3 days, so we'll know in a few days how serious this one is.


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

The Dow Completion Index (small caps / S-Fund) closed for a 3rd day below the August 24th low although yesterday's action came within a whisper of moving back above it, so both the S&P and S-fund are potentially facing resistance right now. This chart has gone down sharply for 9 days since the recent peak so some relief is due and moving back to the 20-day EMA may not be too tough, assuming it can get back above the August low first.


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

The EFA (EAFE Index / I-fund) gapped up yesterday and gained nearly 2%. It could be a bottom but this chart is still broken and the rally did little to change the technical picture yet.


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

The German DAX, one of the leaders in Europe, broke down from a large bear flag earlier this month, and since then it has created another smaller bear flag. So far the lows are holding, but bear flags tend to break down so that is an important level.


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

The AGG (bonds / F-fund) moved slightly higher despite the big rally in stocks. The inverted head and shoulders pattern is intact and that tends to be bullish [for bonds].


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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