TSP Talk Blog

Stocks opened higher on Tuesday but the rally quickly faded and, spurred on by the 10-Year Yield hitting 3% and some comments by Caterpillar's CEO, the indices fell, and fell sharply, for the next several hours. The Dow, down over 600-points by mid-afternoon, rallied a bit into the close and ended with a loss of 425-points.

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The morning strength and afternoon selling in U.S. stocks, plus the dip in the dollar yesterday helped the I-fund hold onto a small gain.

The 10-Year Treasury Yield did touch 3% yesterday, the highest level in over 4-years, and whether that is an emotional number that triggered selling, or if it was a technical number that saw trading programs pushing the sell switch, I don't know, but we kind of expected some kind of reaction. The yield did not close above 3% so what now?




Also, some comments from Caterpillar at their earnings conference call triggered a major reversal in many industrial stocks. It may have been an innocuous comment about their first quarter, but it sure spooked investors when he said the first-quarter profit per share was a "high watermark" for the year.




Texas Instruments reported solid earnings after the bell and we saw overnight Nasdaq futures up about a half of a percent.

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The S&P 500 / C-fund hit the 50-day EMA for a second straight day and for the second time it backed off it, which is what you'd expect in a bearish market. The series of lower highs qualifies this as a market acting bearishly, although we are not in a bear market yet by most measures. Testing that 200-day EMA puts us closer to that definition, but it held on the first two attempts and so far it remains above it. We're still in the process of testing the February lows and the January highs are now about 3 months old.




The small caps / S-fund was down 0.8% on the day but was relatively stronger than the large caps. I showed what looked like a head and shoulders pattern last week on this chart and so far it has been playing out as expected. We got a nice rebound off the lows going into the close yesterday but if this H&S pattern is going to play out, I'd expect this index to test the 1310 - 1315 area on this leg down, although there is some rising support near 1343.




The Financial sector chart still looks a mess with a clear bear flag formation that attempted to break down yesterday, but the flag held by the close. The downside target, should this flag break, would be near 24.0 and I doubt the rest of the market would ignore that.




The High Yield Corporate Bond Fund fell below the 50-day EMA yesterday and the next level of support would be the 200-day EMA, which also happens to be in the same area as the rising support line.




The AGG (Bonds / F-fund) made a new closing low yesterday, and the question now is whether it can bounce off that old low, or if we get a breakdown. Obviously the key will be whether the 10-year yield holds above or below the 3% level.




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

Tom Crowley


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