TSP Talk Blog

Stocks fell sharply for a second day on Tuesday, with the Dow dropping 363-points making it 540-points in two days. It sounds like a lot but the broader indices were only down around 1%. Volume was slightly higher than normal, but nothing that indicated panic selling. The market has been able to shake off two day declines fairly easily over the last year. Now if we get a third day, that may change attitudes, but for now, meh.

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The S&P 500 is down about 1.75% over the last two days, which is 1.75% off the highs. That's not exactly surprising and it's just the price the market pays for rallying 7.5% in January before this dip. The losses just basically took away last week's gains.

The word on Wall Street is the concern about rapidly rising bond yields and the inevitable Fed Funds rate hikes, but the market is always looking to pin in on something. Basically this market had come a long way and it is really in desperate need of a break, and a sentiment adjustment from those who have gotten overly excited about stocks won't hurt. But now after two big days down, stocks probably need to rebound in the next few days or there could be a shift in character going on.

Normally we'd see investors move to bonds on down days like we saw to start the week, but not so far. Even gold wasn't up so there has been no flight to safety yet, although there was some buying in the defensive utility sector.

Last year the market gapped up after Trump's State of the Union address (actually called a "Joint Session" speech in 2017) but that day's high was a temporary peak for stocks. So, the president may be able to get investors excited Tuesday night, but it could be a short-lived reaction if it's anything like February of 2017.




The Fed meets for a 2nd day today but we're not expecting a rate hike, but they could give some clarity on their plans for 2018 cuts.

The January jobs report will be released on Friday and estimates are looking for a gain of 180,000 jobs, and an unemployment rate of 4.1%.


The SPY (S&P 500 / C-fund) broke down from that relentless, narrow trading channel. That is a yellow flag but not a deal breaker for stocks yet. That angle of incline was just not sustainable. There was a negative reversal candle created and that is usually a bad sign for the short-term, but I suspect buyers will make an attempt in the next day or two. Whether they succeed in taking things up again, I don't know, but probably. Bull markets don't die that easily.




The small caps / S-fund fell sharply but found support at the bottom of a rising channel. This looks like a very good test for small caps.




The Dow Transportation Index had a rough day as well, and 11,000 looks to be a very important level of support. The next levels of support would be a pretty good drop from here.




The EAFE Index / I-fund also broke below its rising trading channel. Again, it was not sustainable, but what now? Support is very thin from here, and if that open gap is in the picture, uh, oh.




The High Yield Corporate Bond Fund fell sharply but this could be a bull flag. If that's the case it would need to hold here, otherwise that open gap is back in the picture.




The AGG (bonds / F-fund) closed off its lows but continues to slide losing another 0.16% yesterday. The trend is clearly down, although there is room on the upside in that trading channel if it wants to try to bounce and retest that 200-day EMA.




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

Tom Crowley

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