TSP Talk Blog

Wednesday morning was certainly testing the valor of the bulls as stocks opened lower and within about 30 minutes the Dow was down 300-points. It did stabilize after that and rally back up, but the indices could not move into positive territory by the close, and the Dow ended the day down 92-points. The S&P and Nasdaq managed to stay relatively flat, but small caps and the I-fund went back to lagging.

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Right now the S&P 500, and many other indices, are in the process of trying to form a low, but it's too early to determine if that is going to be the case. Yes, we've seen an oversold rally off the lows but the battle may be just beginning.

The 2018 year to date chart reminds us that the churning could last awhile until a direction is determined. In February the S&P range was 175-200+ points wide depending if you include some of the intraday spikes, and that kind of action can be nerve-racking. In April and May it was about a 75-100 point range, and in June / July it was down to about 50-points. The current range is about 100-points so if the S&P can't break above the upper range on this pass, or move above the 50-day EMA, there is a chance we could be testing the bottom of the range at some point soon. How does that make you feel? Even if the lows hold, there will be a lot of nail biting.




Earnings season is young and the big names in the coming reports could dictate some daily moves, but the process of finding a low may not be determined by earnings, but rather technical analysis, which is actually a picture of how the fundamentals are playing out. It's emotions mixed with fear and greed from the dip buyers and sellers of rallies, and as I mentioned yesterday, the mid-term elections are coming up and that may be the end game for determining an ultimate direction. So, get used to the volatility for a little while longer.

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The S&P 500 / C-fund sold off early on Wednesday but bounced back to close near the highs. It is still in a choppy environment (see the choppy boxes in the chart up above) but also it is between some rising support and descending resistance. The apex on that is narrowing so it won't be too long before one of them wins out. There's about a 12-15 point range within the apex for today's candlestick, if it doesn't want to choose a direction today.




The DWCPF (S-fund) lagged but also battled back from some early steep losses. It remains below the 200-day EMA, which could be a ceiling if this market is not ready to bottom.




The Dow Transportation Index rallied early but closed down below the 200-day EMA again, after a brief break above it yesterday. It traded in a 200-point range so it remains quite volatile.




The EAFE Index was down thanks to a big rally in the dollar yesterday. The lows basically filled an open gap before it bounced back a bit, and for now it remains within that large descending channel with a lot of room overhead if it has the strength to test the top again.




The High Yield Corporate Bonds hit that 50-day EMA and backed off, which is a concern. It had come a long way off the Thursday low so it may just be consolidating, but there's always the chance that the 50-day EMA is a top in this relief rally.




The AGG (bonds / F-fund) has now flipped back over after failing at the old support line and neckline of a head and shoulder pattern. That could be a small bull flag forming (blue) so perhaps another short-term rally is coming, but that neckline may prove to be tough to recapture.




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

Tom Crowley


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