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Wild day ends in rebound

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The wild ride down Wall Street continued on Tuesday and, as often advertised during a downturn, it turned into a Turnaround Tuesday. The Dow closed near the highs of the day gaining 567-points after opening at the lows. The swings were wide and emotions were high.
Daily TSP Funds Return

Yesterday was the first time that the Dow was down 500+ points and up 500+ points in the same day.

My concern at this point is understanding the catalyst for the pullback. Yes, a 10% correction is not a rare event historically, and we were way overdue, but when it comes out of nowhere (other than an extended market) you have to wonder what is up. This is not a comparison but I've written before about the 10% correction we saw in the late summer of 2001 - just before 9/11. It was almost like we were getting a warning. Maybe it's another government shutdown coming? Maybe the bond market bubble is bursting. Maybe it's the fallout from the recent implosion of the crypto-currencies. Maybe a lot of things, I don't know. But the selling did seem a little overly intense for just a simple pullback from the highs without much of a catalyst. I just hope it is nothing more than that.

Here's a follow up on what can happen in just day as far as fear and greed goes.


Source: Fear & Greed Index - Investor Sentiment - CNNMoney


The dollar reversed late from an early rally and with the late U.S. rally in stocks, the I-fund price may be a little skewed on Tuesday (it hasn't posted yet as I type this). The EAFE Index closed down 3% but that will almost certainly reverse today to catch up. And the EFA ETF was up 2% so it will be interesting to see what they post. Update: They gave it a gain of 0.49%.


The SPY (S&P 500 / C-fund) opened sharply lower, reversed almost immediately, but it chopped wild during the day until a late rally took it to its highs. Volume was extremely high as you would want to see at a capitulation low. There has been some damage done to this chart so be careful if this rallies another 2% to 4% and let's see how it reacts to the overhead 50 and 20-day EMAs.




The longer-term chart shows prior market bottoms had similar spikes in volume, although a couple of the lows were retested before a bottom was in.




The small caps / S-fund fell down to its 200-day EMA and immediately caught a bid. It lagged the larger cap stocks but it had a little more downside to make up.




The EAFE Index / I-fund closed down 3% but that will almost certainly reverse today to catch up, barring any overnight disasters. The TSP has some liberty to play with the price of the I-fund shares, and this might be one of those times that they do it. By the time you read this the price will be posted (update +0.49%), but I am writing this about an hour before that will be posted.




The dollar filled the January open gap and turned back down at the 20-day EMA.




The AGG (bonds / F-fund) never traded in positive territory despite the sharp decline in stocks at the open. This is more evidence that the bond market may be in some trouble.




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: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php


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