TSP Talk Blog

Just like last week, stocks started the new week with a big loss. Last Tuesday, after MLK Day, the Dow was down 300+ points. But another trend has been unfolding with weakness in the morning, followed by stabilization and strength into the close, and that's what happened again yesterday. The Dow, down over 400 at the lows, cut the losses in half by the close. Oil was down 3%, and earnings disappointments from Caterpillar and Nvidia didn't help.

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It was more concern about the Chinese economy that had the futures down to start the day, and that was magnified by the warnings from Caterpillar and Nvidia who blamed the slowdown in China.

If you remember last week I was saying how AMD and Nvidia helped boost the semiconductors while the old leader Intel sold off on a bad earnings report. Now that Nvidia guided lower, the semiconductors' index lost 2% and fell back below the 200-day EMA, despite closing well off the lows. It's a technical breakdown but the positive reversal was a plus. I just wonder if it needs to fill that gap near 1200 before proceeding higher.




More earnings pour in today with Apple and Facebook reporting after the bell to keep the busiest week for earnings going.

There's an FOMC meeting this week, but no press conference and no expectations of a change in rates, but of course their comments can always be a market mover.

I'm still leaning on the bearish side for stocks, but obviously the bulls have been much more resilient than I have expected which must be wearing on the bears collectively. The question is whether the bulls, who are showing some fatigue, have the strength to move the indices above some key resistance levels.

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The S&P 500 / C-fund gapped lower on Monday and tried to climb back from the lows and now sits basically right in the middle of the October high and the December low, and these 50% retracements can be a place where a rebound will struggle to move further. That's part of the technical picture. The fundamental analysts may beg to differ but the longer it sits in the 2650 - 2700 area, the more the bears may feel emboldened to try to take it down again.




The DWCPF (small caps / S-fund) was down modestly and remains above the 50-day EMA, but below the trading channel off the lows. There's a also a lot of resistance near 1340.




The Dow Transportation Index held up well closing flat on this negative day for stocks. Oil was down sharply, and that may have helped, but the bulls need to keep this above the 50-day EMA to keep the technical picture positive.




This EFA (EAFE Index / I-fund) has been trading between 61 and 62 for weeks now. The rising support may have broken yesterday, although it has remained above the 50-day EMA. The 62.50 level looks key with several layers of resistance coming together in that area.




The AGG (Bonds / F-fund) was down slightly on Monday but it has been resiliently holding near the recent highs, and stayed above the short-term support line.




Gold has been rallying and it has just made a new multi-month high, and I don't know if this is a play on a weak dollar because bond yields are not confirming any inflationary issues. I just get a little concerned for the stock market when the safety plays of bonds and gold are doing so well.




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

Tom Crowley


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