TSP Talk Blog

The ping pong match continued yesterday as the 175-point gain in the Dow on Monday was wiped out by a 181-point loss on Tuesday. So that's a 185-point decline on Friday, a 175-point gain on Monday, and a 181-point loss on Tuesday. And looking at the S&P 500 chart, it is all taking place within support and resistance lines within the right shoulder of a head and shoulder pattern.

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The oil to stocks correlation was not in effect yesterday as oil rallied over 1% and actually broke above a rising wedge, which is normally a bearish formation. It could be a "fake-out" but if it doesn't reverse soon it's a pretty good sign of strength. If the correlation between oil and stocks is over, then I guess we don't need to watch oil as closely - unless it becomes a gauge on inflation.



And the talk now is that this may be inflationary, along with gold rising and the dollar falling, which gives the Fed another reason to raise rates, but again this is an election year and does anyone think that they will raise rates prior to the heat of election campaigns?

The situation in the S&P 500 (C-Fund) didn't change much despite the big loss yesterday. It tested and held at the support of the neckline of the head and shoulders pattern and for the most part the 50-day EMA, although it did close about a point below it as it did last Friday. We had a similar volatile down / up / down move (blue boxes) while the S&P was in the left shoulder of the H&S in early April. That one held up but there was no H&S at the time so I don't know if the comparison is a good one.




The DWCPF (S-fund) is in a similar situation looking for support at the 50-day EMA and the neckline of its H&S pattern. This one is below the 200-day EMA so there's another level of concern here.




The Dow Transportation Index was actually up yesterday although it closed well off the highs. Yesterday I said that I thought that the April low could act as resistance but it actually blasted right through that level yesterday before hitting the area where yesterday we also said there was "a ton of resistance", and it pulled back again closing below that April low.




The EFA (I-fund) continues to consolidate in the 57 - 58 range, falling to 57.23 and back below the 50-day EMA. Unfortunately that may be a bear flag forming so it's touch and go here.



The AGG (Bonds / F-fund) pulled back and seems to want to test the breakout area and the 20-day EMA. This is typical action after a breakout, but a move below the breakout level, and in this case the rising support line, would be bearish for bonds. Until then, bond traders may be buying the dips.




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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


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