TSP Talk Blog

Stocks were rocked on Friday by comments from President Trump regarding more tariffs on China and after all was said and done, the Dow lost 572-points, or 2.34%. Most of the major indices gave away 2% or more with the Transports losing nearly 3%, and small caps falling just short of 2%. The I-fund held up much better as the Tariffs don't have the same impact on European companies.

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The jobs report came in light but it was overshadowed by the market's latest obsession - the Tariff Talk / Trade War, which Trump sparked again on Thursday night. Stocks actually bounced quite a bit after the release of the jobs report, but that faded when the market opened and as the day wore on and headed into the weekend.

The futures opened modestly higher Sunday night, and with the quasi-positive reversal on Friday afternoon to push the S&P back above the 200-day EMA, an early rally wouldn't be a surprise, but can it hold?

The volatility we've seen does not feel normal, but it actual is. We're just comparing the recent swings to the post-2016 election complacency of 2017, non-volatile market, which actually was the anomaly.

I don't like some of the charts and sure, they could breakdown and change things, but for now, we're near the test of a 10% correction, and that may not be a bad thing.

But even if stock do move higher over the next month, we could see some kind of flushing out, or capitulation first, from bulls who are not so convinced about this market. It could get ugly IF that happens, and it will be difficult to watch but it could be potentially a great time to buy if you are not already in the market. You would be doing it while the masses are exiting in panic so it would not be comfortable.

That flushing out is not mandatory this time around since we saw it happen at the February lows, and that's just a set up for a market bottom - a high volume mass exit that basically takes everyone out of the market, who had any concerns about it. Once they sell, who would be left to sell? And once the sellers are gone, the only people left are buyers.

This isn't a prediction, but rather a synopsis of prior market lows. We've been waiting for a test of the lows, and now that test is upon us. Even if we do see a lower low, watch to see how it is handled by investors. A high volume down day followed by an intraday reversal would be what we'd look for in that case as a capitulation low.

If stocks fall sharply below the 200-day EMA and stay there for more than a couple of days, then we may have a different situation on our hands and we'd be talking about a bear market. So let the games begin...

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The S&P 500 / C-fund is still in a troubling looking bear flag but it is desperately, but successfully remaining above the 200-day EMA, despite Friday's big losses. The lines in the sand are drawn but even if we get a scare to the downside, look for the close to tell us if the dip buyers are still willing and able at this test of the lows.




The weekly chart shows that we temporarily breached the lower end of the longer-term rising trading channel, but it did manage to close just inside the channel by the end of day on Friday. As we saw the extremes on the upper end to start the year come back into the channel, perhaps the breakdowns will also find their way back as they did last week.




The small caps / S-fund are in a bear flag and below the key 50-day EMA, but above the even more important 200-day EMA. The wide swings may continue but just keep an eye on the upper resistance and lower support to see which one holds, and which doesn't.




The Dow Transportation Index had a rough -3% day on Friday but as you see in the chart, not much changed. It's not a great looking formation but like the others, it's the 50-day and 200-day EMAs that matter right now.




The EAFE / I-fund had a positive day on Friday and my assumption is that people were opting for overseas stocks with the U.S. tariff talk. There is a large gap down below 69 that may have some short-term negative ramifications.




Today is the 9th and seasonality will be on the bulls' side for the most part over the next few weeks.


Chart provided courtesy of www.sentimentrader.com


The AGG (bonds / F-fund) was up solidly on Friday. It had looked like the recent rally in bonds was about to fade but with stocks selling off on Friday, there was a bit of a flight to safety from stock investors.

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

Tom Crowley


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