TSP Talk Blog

Stocks open sharply lower on Thursday and it was just a matter of minutes before the Dow was looking at a 180+ point loss at the lows. About 11 AM ET the dip buyers showed up and the bears stayed away until about the last hour of trading. The rebounded and closed with a 45-point loss and we had a positive reversal day. Only the Transports didn't lose money however, and while the rebound was technically positive, we do need to see some follow-through because something seems awry. The normal bull market behavior is starting to flinch.

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Bank stocks will start to rollout 3rd quarter earnings reports this morning and that could set the tone for earnings season.

It is about this time of year in an election year, when an early October pullback should stabilize. This election campaign has been anything but typical but actually, up until this point, the market action has been quite typical, which is a good sign.




The SPY (S&P 500 / C-Fund) fell early on Thursday, hit the support line from the September lows and rallied sharply off that support line. Whether it can easily recapture the 50-day EMA like it did in September is questionable. A break below 211 and we'll have some problems.




The DWCF (S-fund) also reversed nicely on Thursday and bounced off the September lows. It still has not filled that small gap below those lows, which is a little surprising. A lower low would mean a new downtrend, but so far it has held.




The Dow Transportation Index held up well again and that's what we would want to see from this market leader. Not only did it close without a loss, but it found double support at the longer-term rising support line and the 50-day EMA. This is a good sign for the broader market indices, but the Dow, S&P, and the small caps have already broken below their rising support lines so we have some concerns.




The EFA (I-fund) fell below the important 200-day EMA in early trading, but managed to close just above it with the strong afternoon rally. Technical analysis is a little tougher on this chart because of the overseas trading which causes many gaps and delays, but that break was a warning sign.




The price of oil rallied on Thursday and its intraday reversal was probably meaningfully responsible for the stock indices turning around. It tested that $49 area that we mentioned yesterday. If $49 holds then we could see a break from the $40 - $50 range. Higher oil prices are generally a good sign for the economy but unfortunately the recent rise has been due more to a coordinated attempt to decrease supply.




The AGG (Bonds / F-fund) rallied on the early sell-off in stocks. I like to see bonds move counter to stocks. It makes things feel a little more "normal". It tried to move back into the trading range but closed just south of it again. It also created a small gap at the open on Thursday.




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Thanks for reading. Have a great weekend!

Tom Crowley


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