TSP Talk Blog

Stocks opened sharply lower on Tuesday and the Dow was down 130+ at the open, but that was actually higher than the 200-point loss we saw in overnight trading in the Dow futures. By the close things reversed positively and the Dow ended the day up 57-points. Volume was not too heavy as we would normally expect to see on a reversal day like that, but that's because of the time of year and the light volume added to the volatility.

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Bond yields were down sharply to start the day as bond prices rose. As the day wore on that also started to reverse but bonds did close at new highs again. At the lows yesterday, the 2.09% yield on the 10-year treasury was the lowest since after the election last year.

As we've talked about before, light volume tends to magnify market moves because the indices can be pushed around more easily with large trades, and with many Wall Street folks on their summer vacations this week, that was the case on Tuesday as the North Korean missile launch news was sold and bought.

Holiday reversals are possible so be skeptical of the movement over the next three days. It could easily reverse next week. This is an old chart - goes through 2011 - but the trend is still valid as we see strength before Labor Day weekend, but a less positive bias after, although the post Labor Day week can also see very light trading volume.


Chart provided courtesy of www.sentimentrader.com

The August Jobs Report gets released this coming Friday and consensus estimates are looking for a gain of about 185,000 jobs and an unemployment rate of 4.3%.

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The SPY (S&P 500 / C-fund) reversed nicely to the upside after filling in the open gap in early trading. But for basically 6 days in a row, the 20-day EMA has held as resistance. The bulls may have a chance to make their move this week, especially with many bears (who are generally traders) on vacation and keeping volume low. After the holiday it may be a different story, but for the rest of this week, without any major catalyst, I'd say the bulls should be able to control the action. The key may be to see the 50-day EMA hold today on any attempt by the remaining bears to pull the market down again.




The DWCPF (small caps / S-fund) was flat but had a big reversal day. If you look at the chart however, you can see that the reversal is the only positive technical aspect of the chart until it can get back over the 20-day EMA and the descending resistance line.




The Transports had a big day but the technical picture remains questionable right now.




The Nasdaq 100 was one of the bigger winners yesterday and technically, it created a positive outside reversal day, which usually bodes well for the following day of trading. And if that's the case, perhaps this large bull flag will finally break to the upside.




The EFA (EAFE Index / I-fund) missed the boat yesterday because of the early closing times of the overseas markets, and the late rally in the dollar. It could play catch up today.




This chart of France's CAC 40 Index shows the kind of damage that has been being done to the European market charts, but the dollar's weakness has kept the I-fund in the game. Yesterday we did see a positive reversal before the close in Europe, but not to the same extent of the U.S. markets. But that break of the 200-day EMA and reversal looks like a very good short-term position for this index, and other European markets, to rally in a negative trending market.




The AGG (Bonds / F-fund) rallied early on the North Korean scare and broke above its wedge / trading channel, but reversed down and closed back within the range. Like the big negative reversal in the S&P on August 8th, this kind of reversal could indicate at least a short-term top in bonds.




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

Tom Crowley


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