TSP Talk Blog

Last week was a wild one for the stock market as volatility has been picking up the closer we get to the FOMC meetings this week. 4 of the last 6 trading days saw triple digit moves in the Dow and we've see four 1% plus moves in the S&P 500 after going months without one. For the day, the Dow lost 89-points and we did see buyers step up in afternoon trading to take the indices off their lows of the day.

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The big question of course is whether the Fed will raise rates this week. While we heard noise from inside the FOMC of both hawkish and dovish stances, the analyst consensus suggests there is a 25% to 30% chance of a rate hike being announced on Wednesday, and about a 50% chance of at least one hike by the end of the year. The question is, how will the market react to a hike... or non-hike?

Over the weekend we saw some homeland terrorist activity and that could put the markets on alert. The futures didn't show much of a reaction when they opened Sunday evening so I don't know exactly what the reaction will be, if any, but I suspect any reaction will be short-lived as the Fed comes back to being the main focus.

The SPY (S&P 500 / C-Fund) lost about 0.40% on Friday although it closed off the lows creating a positive reversal day, but as I mentioned early, the acts of terrorism this past weekend could negate the typical reversal type action. The gap above remains open so that will be a lure to the upside, but there's a possible bearish flag forming. The Nasdaq already broke to the upside from a similar formation so we'll see how much leadership the Naz has over the S&P these days.




The weekly chart shows that the neckline of the large inverted head and shoulders pattern held on the test last week, and that's a good sign so far. That's typical technical analysis but with the Fed on deck technical analysis could be taking a back seat to emotion.


The DWCPF (small caps) is also in a flag formation. There is some support connecting the June high with the lows of the the top of the July open gap (blue line), but that open gap getting filled is also a possibility for the downside at this point.



The Nasdaq has been leading with the help of a nice rally in Apple's stock. The index only lost 0.1% on Friday and also created a strong positive reversal day. It's the only index to fill its overhead open gap, which so far has acted as resistance. New highs are needed this week or the bears will surely put more pressure on.




The EFA (I-fund) lagged on Friday with a lot of that coming from a strong rally in the dollar. It hit and held at the 200-day EMA so far, and as you'll see in the dollar chart below, it too is testing the 200-day EMA from the other side.




The dollar rallied opening up a gap near 24.7, but ran into some resistance by the close. The possibility of a rate hike has helped the dollar recently and whether the Fed raises or not will like push this above or below the current narrowing pennant formation. A rate hike could push this UUP up near the July highs.




The AGG (Bonds / F-fund) looks to have formed a bear flag as it reached up toward an open gap that probably really wants to get filled before any more weakness in bonds. But we'll see if the bond market has the strength to do it. A hold on interest rates this year could easily fill that gap, but it wont mean bonds would be off to the races again. This chart looks vulnerable.



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

Tom Crowley