TSP Talk Blog

Stocks opened lower on Monday and the bulls could not put together any kind of late rally to follow up on the positive reversal last week. After hitting the highs of the day just after 1 PM ET and taking the Dow to nearly break-even, the bears took over and the Dow ended the day down 208-points. The small caps were clobbered after Friday's fleeting hope that they would lead during the relief rally.

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It was once again the falling price of oil that spooked investors, but let's not forget that oil rallied 20% off of the lows last week. It hit and stalled at the 20-day EMA early Monday so apparently the oil bears are not going to go away that easily. It closed back below $30 a barrel.


The Fed meets this week and the FOMC meeting is scheduled for Wednesday and Thursday. It will be interesting to hear what they have to say since this recent mess all started just after they raised interest rates for the first time in many years. The Fed is really between a rock and a hard place because they clearly can't continue to raise rates in this environment, and cutting rates after raising them last month would be very unusual and bad for their credibility. They do have a history of "saving" the market, but they may be out of bullets. Let's see how creative they can get

The S&P 500 Index (C-Fund) pulled back sharply after last week's late rally, but for now the "V" bottom is still intact and it held above the late summer lows. Clearly it looks vulnerable and at the mercy of the price of a barrel of oil so it needs support to hold.


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

The price of oil hit the 20-day EMA early Monday and that was the rally killer. The downtrend is intact. The questions are, was this just some profit taking from the folks who made money on the 20% rally last week? Is this going to be a test of the lows? Is this just a shake-out to scare the weak oil bulls? Technically, it looks bad, but how low can oil go? Obviously lower than seems reasonable, but that always seems to be the case during a bear market.


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

The Dow Completion Index (small caps / S-Fund) were hit hard on Monday after Friday's encouraging rally when it led the large caps indices. Technically there is still a chance that the "V" bottom will hold, but the bears took back the momentum on Monday.


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

The EFA (EAFE Index / I-fund) probably shows us the best reason why the pullback may have been necessary. That large gap was opened on Friday morning and Monday's action only partially closed it.


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

The HYG High Yield Bond Fund also moved down to fill Friday's gap. This is clearly in a downtrend after last week's hopeful reversal. It really could go either way at this point in an effort to either test the lows, or just to fill that gap and reverse higher again.


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

The AGG (Bonds / F-fund) was down yesterday and like the positive day on Friday, the negative close is a little puzzling and could be a possible good sign for stocks today. The bond market traders are considered more savvy than stock market traders so maybe they are trying to tell us something. And by that I mean perhaps they are lightening up on bonds because they know yesterday's decline in stocks was part of a retest of the lows that may be temporary.


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


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