TSP Talk Blog

Stocks rebounded on what could turn out to be a Turnaround-Tuesday as the Dow rallied 108-points, but the early gains faded. The indices drifted lower in afternoon trading taking them well off their highs, and so they were not able to get back all on Monday's losses, but a good part of them.

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Earnings continue to be the main story, with tariffs / the China trade war, rising interest rates, and political wrangling somewhere as a secondary concern for the moment. Earnings have been strong and we have seen some typical sell the news reactions, but not much of an effort from the bears yet.

There were some strong earnings reports released after the bell yesterday with Apple being the keynote, and it was up nearly 4% in after hours trading, so that could set the early tone today.

Once earnings season winds down, we will head into those real summer doldrums where there won't be as many catalysts out there and trading volume will be lighter, and that means we could see the indices get pushed around a little more easily.

August is one of the weaker months historically as the following two charts indicate. The second chart is old but still has 62 years worth of data.



Charts provided courtesy of www.sentimentrader.com


Here's more on a seasonal trend from www.cnbc.com:

"The S&P 500 is about to do something it hasn't done in a midterm election year since Dwight D. Eisenhower occupied the Oval Office. It's on track to end July in the green after a positive April, May and June.
"That's a rare bullish sign, according to Jeffrey Saut, chief investment strategist at Raymond James.

"There's only been two years in the midterm election years going back decades where the market has been up in April, May, June and July and it was only 1954 and 1958," Saut said on CNBC's "Trading Nation."

"Each one of those times, the market, after a soft first part of August, rallied sharply into year-end."

In 1954, from the end of July through to the end of December, the S&P 500 rallied 16.5 percent. Over that same period in 1958, the index surged 17 percent."

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The S&P 500 / C-fund had pulled back for three days and hit the 20-day EMA at the lows on Monday and held. On Tuesday it opened higher. It actually gapped up but you can's see it on this chart as an actually gap in the chart, but Monday's close was 2802.60 and Tuesday's low was 2808.06 so technically that 5.46-point spread is a gap. The F-flag broke down on Monday and Tuesday's action pushed it back to the bottom of the flag, only to see it start to pull back from there. Old support tends to act as resistance, once breached. So the short-term battle here is between the bottom of that flag and the 20-day EMA.




The small caps (S-fund) rallied about 1%, but it too hit its old support line and stopped. On the bullish side of the story, it is back above the 50-day EMA so it passed that 3 - 5 day confirmation test that we talked about yesterday.




The Dow Transportation Index looks to be hitting a possible short-term snag as it makes a double top. The trend is clearly higher but it has been moving up for about 5 weeks now so I can see some profit taking here, even if only briefly.




The Financials had that big negative reversal day on Monday and it did produce losses on Tuesday as we suspected here. There are some signs of the rsing trend breaking so this needs to head back up quickly, or a test of the 50-day EMA could be next.




The EAFE Index (I-fund) was down a bit with the dollar up on the day. That 200-day EMA has been stubborn resistance.




The High Yield Corporate Bond Fund broke out above its resistance so the credit market is in a happy place. That usually means good news for stocks, but I suppose we need to give it the 3 - 5 day breakout confirmation test first, like we did with the small caps.




The AGG (Bonds / F-fund) has been bouncing in between the 50 and 200-day EMAs and has created a bear flag in the process. I have to give the nod to the bears on this chart as it looks like it wants to move lower.




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

Tom Crowley


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