TSP Talk Blog

Stocks were hit hard on Monday after more run ins, and new obstacles, with the Chinese when it comes to trade and tech investing. The Dow, down 496-points at the lows, closed strongly and ended the day down 328. The Transportation Index, small caps, and technology stocks were the laggards.

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The Nasdaq was hit particularly hard after the President made comments about cracking down on Chinese investments in tech firms. But in an interview with Peter Navarro on CNBC about 20 minutes before the close, the White House's National Trade Council Director asked us to discount that situation and that gave relief to the indices into the close.

So more trade issue had investors concerned and this time the small caps, which are not as impacted by the trade "wars", were taken down hard as well. If you recall last week we said, "...if the Dow and S&P rollover, as we are seeing in the financials and some overseas markets, I suspect the small caps will eventually follow", and "...as we saw in February of 2018, when the rally does end, it could be ugly in hurry so if you are in the small caps, don't get too complacent."

So it was possibly a matter of overheated tech stocks and small caps finally succumbing to the pressure that was already inflicting the Dow and S&P, and possibly nothing more than that.

Also, both bonds (at least the AGG) and gold were down yesterday so there was not a big rush into those safety type trades as you might expect on a day the Dow had been down 500 intraday, and it may have been, as I said, that small caps were just due for a pullback.

The question of course is how much of a pullback is enough, and the issue is, the trade talks seem to be going back and forth with more unknowns than knowns, and the market does not like that.

There is also the case of the 3rd quarter concluding at the end of this week so we may have have seen money managers doing some window dressing and locking in gains after a strong couple of months for stocks.

Technically, the Dow is the first of the three major U.S. indices (Dow, S&P, and Nasdaq) to test the 200-day moving averages (simple and exponential) and so far the EMA held, but the SMA did crack. After the losses yesterday, both the Dow and S&P 500 are now negative for the month of June.

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The S&P 500 / C-fund fell through the key 50-day EMA after gapping down at the open on Monday. The rising wedge broke down, as they tend to do, and from here the support picture is not very stable, although the positive reversal at the close may provide some support. There is now an open gap near 2750.




The small caps (S-fund) were down for a 3rd straight day with Monday's loss the largest in a few months, and again the rising wedge led to a breakdown so we see technical analysis is behaving. The lows yesterday came at a very interesting level where a double dose of support were meeting just below 1420.




The Dow Jones Transportation took a 2.3% haircut, and as day trader Oscar Carboni taught me several years ago, once an F-flag breaks down, as they tend to do, the chart gets F'd. Sorry




The EAFE Index (I-fund) was down like the U.S. markets and it is now testing the lower support of that longer-term trading range. I didn't draw it in today but we talked about the head and shoulders pattern on this chart, and they tend to breakdown, and that may be tested before the end of the week.




The AGG was down on the day (although the F-fund was up) which is a surprise since we'd expect a move to this safety play on a day like yesterday. That could be telling. Either bonds (as well as gold) catch a bid soon, or this pullback in stocks could be short-lived.




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

Tom Crowley


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