TSP Talk Blog

Stocks were up on Wednesday but there was some late selling and the Dow held onto a 43-point gain, off the triple digit gain it had at 3 PM ET. The S&P 500 almost lost all of its gains but held on to a +0.08% increase. Once again oil was up big, and the financial stocks also rallied and they seem to be the catalyst as earnings continue to be just OK.

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Oil rallied another 3.65% yesterday and the reason we can say this was the catalyst was because the reversal from the morning lows in stocks coincided with a positive reversal in oil.



This time the talk is about China, and one of the main reasons oil retreated in 2015 into early 2016 was because of the weakness in the Chinese economy, but now the talk is that they are stabilizing.

The S&P 500 (C-Fund) moved up between the November and December peaks before slipping back and closing below them. Pushing toward new highs is like trying to fill a gap - it's like a magnetic pull. But getting over the old highs can be a little tougher.




Let's take another look at the head and shoulders pattern where we thought the head test could fail. Officially, we're still in the head test but the typical test does not usually get this far. The head and shoulders formation is not playing out in a typical manner, but the question remains on whether we get the breakout.



Here's the typical head test that we have shown repeatedly. It looked for a short while that the S&P was failing at the head test, but those dips were bought quickly taking away some of the steam of that technical pattern.

And here is an example, using the chart of silver, of what a typical head test of the head and shoulders looks like.




The DWCPF (small caps / S-fund) has not had any problem remaining above the 200-day EMA since the breakout 6-days ago. There is overhead resistance, but it is rising.




The AGG (Bonds / F-fund) hit that 111 level again and pulled back. It is struggling to breakout but remains in the base it has formed this month.




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Thanks for reading. We'll see you tomorrow.

Tom Crowley


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