TSP Talk Blog

Rotation, rotation, rotation. That's the word on Wall Street for the strange action we are seeing with big declines in some indices / sectors, while other indices / sectors are behaving very well. The big tech, which has been leading the market higher all year, is now being sold off, while the laggards - energy, financials, Transports, and the small caps, are being bought up.

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It hasn't had a major impact on the Dow, down 36-points on the day, or the S&P 500, down 0.10%, so our TSP accounts haven't been overly affected. We have been seeing rather muted moves in the C, S, and I funds despite the wild moves in the Nasdaq. But will the negative action in the old leaders spill over into the broader market, or is this just money moving from one pocket to another?

The two-day FOMC meeting starts today with a policy statement and press conference by Janet Yellen on Wednesday.

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The SPY (S&P 500 / C-fund) traded within Friday's engulfing candlestick, which was a wider range than the prior 5 trading days. It was even worse on the Nasdaq so it may be more meaningful than the modest losses that we saw in the indices over the last two days. Watch that 242 area on this chart since that appears to be where the most firm support lies, otherwise the 50-day EMA becomes the next target.




The DWCPF (S-fund) has been holding up very well but that large kangaroo tail top on Friday could be something to be concerned about.




I'm not calling for a top just yet, but those kind of intraday reversals have marked major market tops / bottoms over the years. The October 2007 market top had one, as did the May 2008 peak. And then there were the bottom reversal days in August 2007 and Marc 2008. Again, I'm not calling a top, but we may look back on that reversal in the coming weeks and remember we may have been warned.




The Dow Transportation Index is performing well as oil continues to slide. It is outperforming the other indices as it made a new 3-month closing high yesterday. This could be a good sign for stocks since this is the market leader. I still think it could come down to test that lower support line again to form a right shoulder of an inverted head and shoulders pattern.




The EFA (EAFE Index / I-fund) was down and has some short-term technical issues after the recent breakdown from the rising trading channel. It is also getting closer to the next open gap.




The financials, which have been lagging lately, have been perking up as money flows into it from those tech stocks, although yesterday's candlestick may be showing a reversal pattern.




Same for the energy sector which has been lagging for months. It is up against the 50-day EMA and may be running into resistance, but the last couple of days have been great while the broader market and tech declined.




The AGG (Bonds / F-fund) was flat as it held at some important support from the cup and handle breakout line and the bottom of the open gap. Why yields would go down from here (and bond prices rise) I don't know, unless the Fed is planning on throwing us a curve tomorrow.




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

Tom Crowley


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