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North Korea issues end the Dow's streak

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Stocks were pushing into new high territory on Tuesday morning before things reversed course in early afternoon trading and we saw the new highs turn into modest losses by the close. The Dow lost 33-points on the day ending its long winning streak, and that's hardly a crisis. But as you'll see in some of the charts below the negative reversals on some of the charts could mean at least some short-term follow-though on the downside.

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The situation in North Korea has been percolating for months, if not longer, and we mentioned it a few times here as a potential issue for the market, but it just never manifested into one, until President Trump addressed it in some tough terms on Tuesday, and the market took notice.

It was not a serious decline, but the negative reversal that started about noon ET, was an eye catcher as the S&P fell from new highs in the morning, to a loss by the afternoon and into the close. This is a 15- minute chart of the S&P 500 futures market. (This chart is in Central Time).

So the negative reversal means some potential short-term downside, but getting overly bearish hasn't been a good recipe for success over the last 9 months. The dip buyers have been hiding behind every corner. That said, I'll remind us that the market leaders (Transports and small caps) have been struggling for the last few weeks. If the dip buyers back off for a few days, it could be a bit of a cleansing, which wouldn't be a terrible things for some of these overbought large cap indices.

The SPY (S&P 500 / C-fund) poked its head into new high territory, but the trading volume was very light again in early trading so this looked ripe for an intraday failure. Volume picked up when things started to go south. There was a negative reversal day created on the chart, and that could mean some short-term downside follow-through, but so far no support has bee broken.

The DWCPF (small caps / S-fund) posted a similar reversal and that kept the bear flag intact as it site precariously above the 50-day EMA.

The Dow Transportation Index pushed up toward the 20 and 50-day EMAs before it backed off, also failing to break above the descending trading channel.

The EFA (EAFE Index (I-fund) was down fairly sharply as the dollar is finally catching a bid and was up for a 3rd straight day. This could be a break down from a rising wedge pattern.

Some follow up to that small bear fag on the High Yield Corporate Bond Fund chart shows a breakdown yesterday, but that's quite a move down from a small bear flag so there was more to it than technical analysis here. Perhaps a 3rd test of the 50-day EMA is coming, with the first two holding. Will a 3rd time be a charm or a curse?

The AGG (Bonds / F-fund) backed off and remains in the triangle formation after the failed breakout last week. If something does come of the North Korean issue than it wouldn't surprise me to see a new highs again, despite a chart that seems to be failing here.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to:

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

Tom Crowley

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S&P 500 (C Fund)
DWCPF (S Fund)
Dow Jones U.S. Completion Total Stock Market Index (^DWCPF)
EFA (I Fund)
iShares MSCI EAFE Index (EFA)
AGG (F Fund)
iShares Lehman Aggregate Bond (AGG)