TSP Talk Blog

Stocks fell sharply on Tuesday as we saw a broad sell-off covering most indices. The Dow lost 200-points, about 67-points off the lows, but the dip buying was unimpressive. The Nasdaq and small caps were hit hard and the strength in the dollar added to the I-fund losses. The Transportation stocks held up relatively well in comparison. Because of the holiday, the TSP fund returns below reflect the action on Monday and Tuesday combined.

Daily TSP Funds Return More returns

Oil has been very strong lately, but it was down yesterday fighting the big rally in the dollar, which took down many commodities, including silver and gold.



The strength in the dollar put pressure on stocks as well as we saw the largest decline in about a month. We've been getting one or two of these types of sell-off since the Brexit pullback. The prior declines were bought, so is it different this time?

The talk on "The Street" is that forward S&P stock price to earnings ratios are getting near 2001 highs, meaning overvalued, and that's because earnings forecast are getting light. Add that to current interest rate situation where the Fed wants to raise rates to "normalize", and it's not sounding like the greatest environment for stocks.

One day does not change the market, particularly as we head into the election where stocks tend to perform well, and with bonds and gold also falling, it means investors are not running for safety yet and money has to go somewhere so I think we have a big question mark going forward.

Financial stocks should benefit from rising rates and with oil rallying, the energy sector will also help the broader indices. So there's no major broad market alarm going off yet, but there are fewer positive catalysts with earnings suffering, except for maybe seasonality.

The SPY (S&P 500 / C-Fund) lost over 1% on the day as we saw the biggest one-day sell-off in a month. I drew 3 parallel lines on the chart to show some possible support areas, but the channels are all descending and recently the resistance line has held tough. The 217 area needs to be taken out to break the downtrend.




The DWCPF (small caps) fell through the bottom of its bull flag, something bull flags are not supposed to do. The 50-day EMA was also taken out so we're on the 3 to 5 day confirmation watch on this breakdown. The dip buyers have to be licking their chops, but are they ready to make the move?




The Dow Transportation Index was down 0.62% and failed again to breakout above those two resistance lines. Holding up was a sign of strength, but is anyone willing to but above resistance? There's been little interest in the last couple of weeks.




The EFA (I-fund) fell down to test the 200-day EMA again, an area that has held twice since it moved above it in early July. We have a bullish flag forming although the flag pole is not long enough to make it a classic bull flag. Clearly the 200-day EMA really needs to hold because there isn't a lot of support below it, and there are some open gaps that probably want some attention.




The price of gold continues to get hammered and it has now fallen about $120 off its summer highs. As I mentioned above, this kind of action (along with bonds) does not show too much concern as far as investors looking for safety, so that's one reason why stock market dip buyers may not ready to give up yet.




The AGG (Bonds / F-fund) was down again and hasn't been able to get back within its trading channel yet. Bonds look toppy for the long term although there will be short-term buying opportunities. But with interest rates potentially going up at the end of the year, being in bonds may be swimming against the current.



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

Tom Crowley


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