TSP Talk Blog

Stocks did a bit of everything on Friday as they opened slightly higher, immediately sold off, then reversed up and was posting solid gains after the resignation of Steve Bannon from the White House was announced. That triggered the morning rally because there seemed to be a choice of him staying, or Gary Cohn, who is Trump's top economic advisor and a potential heir to the Federal Reserve Chairman job, and Wall Street preferred Cohn. But after that reaction we saw a steady dose of selling into the close. The Dow ended the day down 76-points with more muted losses in the broader markets.

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As I write this Sunday afternoon, the futures market has not yet opened so I have no idea how the weekend warriors are going to approach the new week. There are good arguments on both sides.

For the bears, the action has obviously been weak and the market has been due for a 5% to 10% correction for a long time. The recent civil unrest and political strife is in full force, and now over the weekend we hear more dramatic rhetoric about a "merciless strike" from the North Koreans.

On the other hand, the bulls might say that the S&P 500 has pulled back to a long-term rising support line and it is below the 50-day EMA where, if you click on the chart to view the full image, you will see that it is about the time the SPY has gap upped and ended its pullbacks over the past couple of years.


Click image to see full size

So, we could be close to knowing how this will eventually play out. We're in a situation where this is where the market would start to rebound should the bull market trend continue. Otherwise, the trend ends and the market starts a new more bearish phase. No one know for sure what will happen, but the bets will be placed and investors and traders will react which means the moves may start getting large, but in which direction?

And, to add a different twist to the situation... the solar eclipse is today and some superstitious folks believe the eclipse is associated with major market crashes, but I don't think historical data confirms that.


The SPY (S&P 500 / C-fund) closed below the 50-day EMA for a second straight day after trying to recapture it with the early rally on Friday morning, but failing. There is some support at Friday's low as it tested the bottom of the new descending trading channel. As I mentioned in the longer-term chart of the SPY above, this is about technically where the downside has been ending for stocks, so this is a pretty big test coming this week.




The DWCPF (small caps / S-fund) broke below its intermediate-term support line and tested its 200-day simple average on Friday. This chart does not look very good but it is very oversold and probably due for some kind of relief, if we don't see a complete breakdown in the stock market this week.




The Dow Transportation Index made a lower low on Friday and it too is testing a major moving average. You can see the 200-day EMA held in May and in the interim made new highs, but is having some difficulties here after the negative reversal last Wednesday.




The EFA (EAFE Index / I-fund) has been holding up fairly well as its the only TSP stock index that remains above its 50-day EMA.




The dollar looks like it may be preparing for a breakdown from a bear flag, which would help the I-fund either rebound or cushion any downside action.




The AGG (Bonds / F-fund) was down slightly on Friday which also tells us that investors were a little bit less concerned about the stock market on Friday. That could change in a heartbeat, so keep an eye on bonds and gold to see if folks are still looking for safe haves in lieu of stocks.




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

Tom Crowley


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