TSP Talk Blog

Stocks rebounded moderately on Thursday stemming the bleeding for at least a day in most of the indices. The Dow gained 98-points but it was quite a wide trading range again being up as much as 190-points about an hour before the close, and down as much as 120 near the open. The Nasdaq and S&P led, while the Transports lagged with a modest loss, but a big positive reversal.

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We're at the end of the month and the end of the 3rd quarter and that could be part of the reason foe the swings as money managers massage their portfolios for their quarterly reports. It's also considered pre-holiday trading which has a tendency to reverse the trend we were in prior to the holiday - at least until after the holiday.

The Dow hit the 200-day EMA at the open on Thursday and once again it found support like it did a handful of other times this year. The market may break below it, but it wouldn't be a surprise to see an upside counter rally heading into the holiday before it does - if t does.




The Financials finally broke their losing streak as the XLF was up for the first time in 14 trading days. It is already below the 200-day EMA but it is fighting to hold at the prior lows.




After the close the Fed released stress test passing grades to 34 U.S. banks with only U.S.'s unit of Germany's Deutsche Bank failing. Deutsche Bank's stock has been reeling for some time now, and it's one of the reasons the German DAX has struggled this year, holding down the I-fund.

If it was this dreadful losing streak that took stocks down over the last few weeks, perhaps this stress test result will ignite some buying again?

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The S&P 500 / C-fund got back some of Wednesday's losses but remains below the 50-day EMA and in some technical trouble. In the short-term though, if this is a head and shoulders pattern forming, we could see an attempt to fill out the right shoulder before any downside resumes - if it resumes.




The small caps (S-fund) had a nice positive reversal day as it pushed back above the 50-day EMA and the March peak. The top of that falling wedge could give it some trouble, but falling wedges do tend to break to the upside when they do break.




The Dow Jones Transportation Index was down again and fell meaningfully below the 200-day EMA early, but it did reverse strongly erasing most of those losses and now we'll look to see if the 200-day EMA will act as resistance or if it can recapture it, which may be needed for stocks in general to rally.




The EAFE Index (I-fund) was up but like the financials, it didn't really improve its technical picture as it sits below the 200-day EMA and only gained back a small portion on Wednesday's losses.




One problem on Thursday was the High Yield Corporate Bond Fund which was down on the day and fell below the 50-day EMA. Stocks may struggle again if this doesn't rebound in the coming days. But if it can reverse course, and it did close off the lows, it may be a catalyst for more upside in stocks.




The AGG (Bonds / F-fund) was fairly flat as the 200-day EMA is holding as resistance. There are two open gaps below and I suspect the one near 106 will get filled quickly, but if the other one near 105.20 gets filled it would likely mean that the 10-year treasury yield is testing 3% again.




But the chart of the 10-year Yield may not be giving us that same signal since this looks like a head and shoulders pattern and it may be more likely to go down than back up to 3% - unless we get one of the those H&S head tests.




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Thanks for reading. Have a great weekend!

Tom Crowley


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