TSP Talk Blog

Stocks sold off on Thursday after more testimony from Fed Char Powell, but more so after talks of tariffs from President Trump. The Dow lost 420-points on the day, but if it's any consolation, it had been down nearly 600 at the lows. Small caps held up rather well losing about 0.6% while the larger cap indices were all down more than 1%. The dollar was down so the I-fund had a bit of a cushion.

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It was the worst first day of the month in over 2 years (January 2016) and the recent sell-off has pushed the Dow into negative territory for the year, as well as the S-fund and I-fund. If it wasn't for the late rally off lows, the C-fund (S&P 500) would have been there as well, but it still clings to a small gain for the year.

The talk of tariffs sent steel and aluminum stock prices higher but a "trade war" would be potential trouble for the market in general. Trade war may be a little harsh. It's more that investors thought the current administration had their backs, but this policy is possibly less bullish for the economy. The old cliché that markets don't like uncertainty may be at play here as new tariffs will add a level of uncertainty.

The market was falling before this tariff talk so it just became part of the excuse but in reality, a retest of the recent lows is typical correction action and this was just part of the news while stocks are potentially in the process of that retest.

The good news may have been that internally the losses weren't too broad, just look at the small caps and Transports yesterday. On the other hand, we may want to see a heavy volume "washout" type capitulation sell-off to get this correction behind us. Otherwise we could just see a slow bleed. By the way, depending on how this plays out, a test of the lows does not always hold so it's not an automatic buy signal for investors if we reach those lows again, although more typically it has been.


The SPY (S&P 500 / C-fund) broke below the 50-day EMA with some authority on Thursday but an argument can be made now for either direction (that's probably always the case) because it hit the bottom of a parallel bear flag for some possible support. But of course we've been eying a possible retest of the lows which would take it down significantly further from the current level. Bear flags do tend to break down, but it could also rally back to the top of the flag before doing so.




The small caps / S-fund broke below its bear flag but it also rebounded fairly nicely and closed well off the lows so there was buying some interest. While the short-term may provide some relief, this is a bad looking chart overall and needs some help before it turns bullish.




The EAFE Index / I-fund also broke below its flag but it was spared a 1% loss because of a drop in the dollar.




The dollar lost 0.34% yesterday and created a negative outside reversal day and closed back below the 50-day EMA. Interesting, it'd probably a bearish sign for the dollar and maybe a good sign for the I-fund (in relation to U.S. stocks only).




The German DAX charts has been looking awful as we have been talking about for a couple of weeks, and yesterday it proved it did not want to move back above the 200-day EMA so this looks like bear market activity. It's a major European market and we could see some other countries fall in sympathy.




The AGG (bonds / F-fund) rebounded a bit as it finally seemed to become a safe haven play at the very oversold levels. The F-fund can be dangerous as a safe haven compared to cash (G-fund) but a bounce to the 50-day EMA wouldn't surprise me IF stocks keep falling.

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Thanks for reading. Have a great weekend!

Tom Crowley

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