TSP Talk Blog

Stocks opened higher yesterday, but again we saw some selling into that early strength, which has been a pattern this week. The Dow lost 37-points as the consolidation of Friday's breakout is continuing. Not all of Friday's gains have been given back, but it's getting close. Low volume and low volatility have made for some dull trading, but that's not necessarily a bad thing.

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Oil may have resumed its downtrend after the sharp 4+ day rally, and that could put some pressure on stocks. Normally that would impact large caps more but it was actually the small caps that lagged yesterday.




Earnings season is just about completed and the jobs report is behind us so the market may now focus on the lesser followed economic data for clues. Seasonality is not normally good this month, but it is an election and we'll look at that again below.

The SPY (S&P 500 / C-Fund) made a new high on Tuesday but yesterday it temporarily fell below the breakout level - although it did manage to close back above it. There is a small open gap still hanging out there as a possible downside target and you can see the immediate support levels the bulls should try to defend.




The month of August tends to be one of the slowest and least positive months of the year and we've seen that "slowness" this month except for the rally triggered by the jobs report.


Chart provided courtesy of www.sentimentrader.com


But as we have referenced before, for some reason August has a decent record during election years, and that strong seasonal bias will hold into September. How about this year? Well, this election seems a little different than a normal election year so we'll have to see how it plays out.




The DWCPF (S-fund) fell through the old flag pattern and now we're looking at the next level of support being about 1070 and even the bottom of that open gap, which is also the prior peak in June.




The Dow Transportation Index pulled back again yesterday and has looked shaky, but we may be seeing a large inverted head and shoulders pattern forming, which in the long run would be bullish, but anything can still happen in the short-term.




The EFA (I-fund) broke above its resistance line but closed below it with a negative reversal day, which is typical as it's a good place for some to take profits. But if this happens to breakout, we'll see some stops get taken out which could trigger a short-covering rally. There's also a possible inverted head and shoulder pattern forming here.




The AGG (Bonds / F-fund) rallied again and is now testing the top of its flag formation.




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

Tom Crowley


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