TSP Talk Blog

Stocks dipped on Monday with the Dow shedding 52-points while the broader indices gave up 0.20% to 0.30% on the day. For a second straight trading day stocks hit their highs near the open but drifted lower the rest of the day. Oil lost 1.6% on the day and the pressure on energy stocks seemed to be enough to guide the market lower.

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As we have mentioned many times before, the market doesn't like uncertainty and that was why a Trump presidency made some investors nervous as the polls tightened. But rather than being a democrat vs. a republican concern for president, what the market does like is gridlock. Based on the recent polls we see Clinton is taking a larger lead recently, but that may not be enough to settle the markets.

Now there's the potential for the democrats to take control of the House and the Senate, which currently belong to the republicans. The concern is that full control in Washington would break the gridlock that the market has enjoyed since 2010.

In 2008 when Barack Obama won the election and the democrats took control of the House and Senate, we saw what the market thought. Although the losses were masked by the financial crises, that kind of control in Washington did add to the market losses because it meant potential big legislative changes.

Anyway, this is what I am hearing from some of the smart money folks who are becoming concerned themselves about the market and this development. The market is always looking for a reason to go up or down and whether it means stocks will in fact go down remains to be seen, but we still have 3 weeks before the election and you never know what will happen.


The SPY (S&P 500 / C-Fund) fell below the 50-day EMA last week and so far has not been able to recapture it. That's 5 closes below the 50- EMA and that is a red flag to me. The 100-day EMA (green) has been a pretty strong area of support since March, except for a few days in June after the Bexit vote. That's the battle going on. Netflix's strong earnings after the close on Monday may give stocks another opportunity to push off of the 100-day EMA, but whether the S&P has the strength to move back above the 50-day again is a tough call. We are seeing some breakdowns that are starting to matter.




The DWCF (S-fund) could not get much momentum on Monday, and while the Thursday low and the September low have held for a couple of days, something needs to happen here to save the small caps. Being saved is not out of the question. We know it has been tough for the bears to keep the market down for very long in recent history, so we don't want to count the bulls out just yet.




The price of oil was down and seems to be in some kind of a bullish flag, or it is failing at the old highs and trying to keep the $40 to $50 range intact. We should know soon enough.




The EFA (I-fund) continues to hug the 200-day EMA after being able to rebound off of it convincingly during the prior tests. Like the U.S. indices, something has to give - either a breakdown or another push from the bulls to keep the bull alive.




The AGG (Bonds / F-fund) rallied up to the bottom of its large trading range. If that gets taken out it still has to deal with the 20 and 50-day EMA's so there a lot of resistance here for bonds.




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

Tom Crowley


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