TSP Talk Blog

Stocks spent most of the day in positive territory on Wednesday, but by mid-afternoon we saw the indices drift lower ending the day mixed with the Dow down 32-points, the S&P 500 and small caps basically flat, while the Nasdaq had a strong day gaining 19-points with the help of Apple's recent resurgence over the last few days despite the market's weakness.

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It was relatively quiet considering what has happened over the last 3 trading days, but with the FOMC meeting scheduled for next week, I think investors are watching the action like deer in the headlights, not knowing exactly what to do.

The SPY (S&P 500 / C-Fund) was flat and it held at the prior days' lows and it builds on the small consolidated box formation. We know gaps tend to get filled and we have a good sized gap up by 218 that will want to get filled, but can the market move higher with the Fed on deck? Perhaps the FOMC meeting will provide the volatility needed to fill that gap, that is if the Fed remains accommodating to the market.




The consolidation box above looks a lot like other pullbacks that we saw in 2015, which I pointed out yesterday, but don't be surprised if we see a brief breakdown - even if it does eventually resolve to the upside. You can see that happened repeatedly back then. But that means we could also see a "fake out" to the upside that resolves to the downside. I'm just saying, don't necessarily trust the first move. It may get you leaning the wrong way.




The DWCPF (small caps) was also flat / slightly lower yesterday as it flirted with Tuesday's lows. Interestingly, the small open gap from early July is just below and it has not been filled yet. I suspect it will although it's possible that the top of the gap will hold. We saw the flag formation breakdown, and the 50-day EMA get taken out, so these are warning signs we should not ignore. I'll cut it some slack for a few days given the the upcoming FOMC meeting next week, since investors seem tentative at this point.




The Dow Transportation Index closed for a 2nd day below the 200-day EMA. In August it closed 3 days below it before rebounding. As some of you know we like to say 3 to 5 closing days confirms a break so we're getting close, but again, we may to give this another week waiting for the Fed.




Some strong inventory reports sent oil lower again yesterday as the technical picture breaks down a bit here, but as we've been saying, as long as oil remains in the $40 - $50 range it may be fine for the stock market.




The EFA (I-fund) is not escaping this pullback. It's below the 50-day EMA and still above the 200-day EMA. We'll call this limbo.




The AGG (Bonds / F-fund) rallied but remains below the breakdown point of the flag. There is an open gap within the flag that could garnish attention, but as we talked about in detail yesterday, bonds may be starting a big topping formation. That doesn't mean bonds will go straight down from here, but we might want to approach them from a little more of a defensive outlook.



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

Tom Crowley


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