TSP Talk Blog

Stocks jumped out of the starting gate with authority on Monday morning with the Dow up 123-points within a few minutes. But just like last week, we're seeing the morning highs get sold. The Dow ended the day down 59-points while the broader indices held onto just modest gains. The Nasdaq held up well but the S&P 500 closed near its lows.

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So it was a mixed bag to start the week with very different results depending on which index you are looking at. I can understand why the large caps lagged after Friday's tariff announcement, but to make it even more intriguing, the Dow Transportation Index was up big and made new highs.

Trading volume was very light, lighter than last week, because of the Jewish holiday Rosh Hashana, which goes into today, so perhaps we'll see a similar light day, but as we saw, that doesn't mean we won't have some movement.

Right now neither the bulls nor the bears have much conviction but the bulls won the battle yesterday after the bears controlled last week. It could be a turn but there is a little pattern on the S&P 500 chart that I'll show below, that's a little concerning for the short-term.

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The S&P 500 / C-fund broke the lower high / lower low trend that we had all of last week and since the August 29th peak. The mini-breakout did replicate something we saw in June that has my attention where we got one day of bounce off the 20-day EMA before the downside resumed again. I have no idea if that will repeat here, but it's worth noting. So far the rising trading channel is holding and that's a plus.




The small caps (S-fund) held onto a slightly larger gain while it sits in the middle of its rising channel, but being in the middle means there's room on either side for it to roam. The tariffs impact large caps more so we could see investors more interested in the small caps while the China tariff news gets digested. That doesn't mean they will go up, but they may outperform the larger stock indices.




The Dow Transportation Index had a huge day gaining nearly 2% and breaking above the bull flag we showed you yesterday. This is a new high for the Transports so there's not much of a negative here. Historically it's not as good of a signal as you might suspect because the Dow is lagging.




The Nasdaq has held for a second day at the bottom of its trading channel / 50-day EMA, and until that breaks I suppose its a bullish sign for the tech heavy index. But any breakdown and that changes.




The EAFE (I-fund) rebounded as well yesterday, off the bottom of its descending trading channel. This is a bear market in my opinion, but we could still get some relief rallies. Bull markets start in the bottom left hand corner of a chart and end in the top right (see the Nasdaq chart above). This is just the opposite.




The AGG (bonds) got a bounce off Friday's lows but it may be finding some resistance at the old resistance line. There is a gap that needs filled so I think it should take out that resistance, but I still don't like bonds, particularly if and when that gaps gets filled, unless stocks start to tumble for whatever reason.




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

Tom Crowley


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