TSP Talk Blog

Stocks opened slightly lower on Wednesday but continued to drop sharply into the early afternoon. By 12:30 ET we saw some stabilization and stocks started to catch a bid as the dip buyers did what they have been doing relentlessly. By the close there was some stiff losses, but the indices had come well off the early lows. The Dow lost 112-points or 0.48%.

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The Dow's 0.48% loss was the largest in over 7-weeks, if you can believe that. This isn't your grandfather's stock market anymore, although with the boom and bust mentality, where everything always seems to be an extreme. The downside, when it eventually comes, could be equally as bad. Not that this or any imminent downturn will bring about a bear market, because this bull is certainly still here and who knows when the next bear market will start - but when it comes, the program trading will likely pound things down as excessively as they are pulling things up right now. But in today's market a half percent loss is a big loss - the biggest in a couple of months, and that's actually almost funny.

The half percent loss was fairly consistent across the indices although the market leading Dow Transportation Index lost 1.6% and did not get an afternoon bounce.

Bonds were getting hit hard early with a 3rd straight gap down, but they did recover fairly well yesterday and closed with just a minor loss, although the chart may be breaking down.

The SPY (S&P 500 / C-fund) bounced back from a steep early loss after bouncing off of the 20-day EMA. Technically it did break down below the rising support line, but it's still in the neighborhood and calling it a breakdown may be too picky and too premature. Another close or two below 256 and yes, that would be a negative.




The DWCPF (small caps / S-fund) also bounced back from very steep early losses and like the SPY, it could not close back above its support line. It fell below the flag but closed back within it.




The Dow Transportation Index was the big laggard losing 1.6% yesterday and it did not get a relief rally in the afternoon like the rest of the market indices. It is testing some weak support and a move any lower would produce a short-term change in trend since we've already seen a lower high. This leader broke below its rising support line a couple of weeks ago so the rest of the market may be following.




The EAFE (I-fund) had a modest loss yesterday and for the 3rd time in a month is testing the 20-day EMA, which held on the prior tests.




The High Yield Corporate Bonds were down and fell below two short-term levels of support, giving up all of October's gains, but rallied to close just above one of them.




The AGG (Bonds / F-fund) gapped down yet again and it broke below the prior low so the trend appears to be down now. In the short-term however, it did bounce off of some descending support, but it looks like bonds need to be sold on rallies. The question is whether this AGG can get back above the prior low to try to fill those open gaps first.




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

Tom Crowley


Posted daily at TSP Talk - Market Commentary

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