TSP Talk Blog

Turnaround Tuesday was almost a inverse mirror image of Monday. As dogmatic as the bears were on Monday, the bulls were as committed on Tuesday. The larger industrial type stocks rebounded better than the Nasdaq and small caps, both of which only got back about half of Monday's losses. The Dow ended the day up 185-points.

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While watching the futures markets on Monday night after the 10% tariff announcement and seeing some decent losses start to evaporate, it dawned on me... sell the rumor, buy the news. That's probably what we saw on Tuesday. Despite recent gains in stocks over the last few months, the market may have been pricing in the tariff situation the whole time. Once it was announce, the world did not end and the 10% tariff was actually lower than most suspected. Of course they are scheduled to be raised to 25% at the end of the year, but negotiations will be ongoing.

The chart set ups look good again as key support levels held, but I don't know for sure yet. We have talked about the Pavlovian knee-jerk buying we have seen on every trade news dip (bell ring) this year, and the market fed the dog again. So in hindsight we shouldn't have been surprised that Monday's sell-off was bought. But how long can it be that easy? That brings up the other thing we talked about the other day - Those who don't buy these dips must be insane since seeing the same thing over and over again and expecting different results is the definition. I'm guilty!

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The S&P 500 / C-fund reversed all of Monday's losses and briefly moved above Monday's highs before pulling back right about where it closed on Friday. These kind of rebounds off of support have led to gap up opens going forward. Some were filled quickly, some not at all. Prior set ups like this resulted in new highs, but the chart is still rather choppy so let's not give the bulls the victory just yet. For now this chart looks better than the small caps chart, which has a couple of issues.




The small caps (S-fund) only got back about 40% of Monday's losses after bounding again off of the old resistance line. I did see a similar pattern from back in July where a big decline was followed by a similar rebound percentage-wise, but it rolled back over a couple of days later. Right now the 1470 area looks to be the key support although there are two more support levels just below that. On the upside 1490 may be a resistance test.




The Nasdaq has been holding firmly at the 50-day EMA. I talked about how much room there was below if that support was taken out, but so far it's holding fine. That's an odd looking bear flag but some similar odd looking bear flags also held during this trend.




The EAFE (I-fund) was up despite some strength in the dollar but there could be some resistance right here, right now.




The High Yield Corporate Bond Fund was flat after losing some early gains and we have another one of the little bull flags that have mostly broken lower, although not always for very long. Over the last 5-months, one of these flags broke to the upside, and one broke sharply lower. The others dipped then rebounded quickly.




The AGG (bonds) took a stiff hit yesterday as the 10-year Treasury Yields closed firmly above the 3% level for the first time since May.




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

Tom Crowley


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