TSP Talk Blog

Stocks opened lower on Monday and couldn't catch a bid selling off slowly all day. The Dow lost 107-points and small caps continued to lag as the Russell 2000 fell below the 200 moving average again.

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The I-fund held up by comparison, but may pay the price today if U.S. stocks don't rebound. Bonds benefited from the loss in stocks and the F-fund gained 0.13%.

The SPY (S&P 500 / C-fund) fell back below the recent breakout area near 201 and it has only been a day, but it has the making of a failed breakout. The 20-day EMA and a couple of support lines are holding it up right now and that will be the key for the rest of the week.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

The PMO indicator moved back below the 10-day EMA for a second time in a couple of weeks. As we mentioned last week, the second PMO crossover of a double sell signal can be the troubling ones.

The Dow put up a big negative reversal day on Friday so we were anticipating some weakness at least to start the day on Monday. The question was whether the dip buyers would show up and the answer was, not yet. We saw the bull flag (blue) breakout last week and we got some upside follow-through, but it has stalled and the 5-day winning steak in the Dow came to an end. We know stocks don't go straight or (or straight down) so now it's just a matter of how investors react to the pullback to support.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

The Wilshire 4500 (S-Fund) was hit hard again on Monday falling 1.5% on the day and nearly hitting its longer-term rising support line. Small caps have been lagging badly in September. At some point they will be considered a bargain and investors will jump back in, but we'll have to see how much punishment they will endure before that happens.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

The Russell 2000 (small caps) fell below the 200-day EMA again - that's third time since May. The first two times it was a good time to be buyer. Is the third time going to be a charm or was the lower high we saw in early September a precursor to a lower low? The 20-day EMA just fell below the 50-day EMA, which is normally an intermediate-term warning sign, but it can also be a short-term sign of being overbought. We could get some relief but watch and see if the rallies get sold. We haven't seen more than 2 positive days ina row since the recent peak.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

The EFA (EAFE / I-fund) fell to test the 200-day EMA again and so far it has held. This is a crucial level for the international markets.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

The AGG (Bonds / F-fund) is rebounding and it was due for some relief, but it is now getting close to testing the 20 and 50-day EMA. As we mentioned above regarding the Russell 2000, the 20 / 50-day crossover can produce a short-term oversold rally. This one already had that rally and now faces some resistance, but if stocks can't reverse back up, bonds may be the place where investors park some cash.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


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

Tom Crowley


Posted daily at TSP Talk Market Commentary

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