TSP Talk Blog

Stocks were down sharply on Friday morning, but once again the bulls were able to stop the bleeding, held the indices at key support levels, and muster another impressive positive reversal. The Dow, down 360-points at the lows, closed up 114-points. It did turn out to be the worst week for the S&P 500 this year, but it was a lot worse about 4 hours before the close on Friday, so we head into Monday with the bulls having some momentum.

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The Trade War is on as tariffs on many Chinese goods are now at 25% as of last Friday, and China is certain to retaliate. But don't get comfortable. The negotiations will go on so we're a just tweet or headline away from a totally different situation. President Trump intimated that the Chinese may be wanting to delay negotiations until after the 2020 election in case a Democrat wins, suggesting that the negotiations would not be as tough on the Chinese as he is. Does that mean this could drag out for another year or more? If that's the case I guess we better get used to the dramatic swings.

Despite being the worst week of the year for the S&P 500, most of the losses actually came overnight - gaps lower, while the indices battled back during the open trading hours. The wild intraday swings made it tough to try to time, particularly for us who have to make a decision at least four hours before the market closes.

It shouldn't be too surprising to see the market "sell the rumor" of the increased tariffs, but "buy the news" after the higher tariffs were imposed. It likes to keep us on our toes.

While I still see the potential for this market to be making a large topping formation, which started in 2018, the recent pullback, back to positive reversal days - the last one being an "outside" reversal day, which is a strong reversal pattern - and the S&P 500 being able to close above the 50-day EMA despite the wild action, tells me that the bulls are not ready to give up and we may have a set up for another short-term rally. Of course we're a tweet away from everything changing so nothing is that simple right now. By the way, I don't trade on my macro view of the stock market. It's more about the short-term indicators. The macro view may just gives me a little more bias in one direction or the other.

The futures opened sharply lower on Sunday so the volatility is still here despite the positive action late last week. I'm not sure if this is trade related, Iran related, or just a carryover of volatility.

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The S&P 500 (C-fund) filled that key open gap near 2830 last week and has so far held - closing above the 50-day EMA after two attempts at breaking down. That's a positive outside reversal day and they generally lead to more short-term rallying - unless there's some news that turns things around again. The market seems to want to go higher again, but I still think this is part a a longer term topping process that will, and has been, taking some time to develop. You'll see that more in the weekly chart below.




The weekly chart of the S&P 500 shows a sharp decline off recent highs, similar to what we saw in January and October of 2018. The difference this time was that Friday's late rally created a reversal pattern on the weekly chart - something that didn't happen at the prior peaks until much more damage had been done. It's just one week off the recent highs so this pullback may not be over yet, but the positive reversals last week means the bulls may keep the bears waiting a little longer before we see more downside. I have to preface everything with "unless there's some major news / tweets" these days.




The DWCPF (S-fund) also managed to close back above the 50-day EMA after two days of intraday breakdowns, but also two days of strong positive reversals. It has been below the 20-day EMA since falling below it last Tuesday, so now that 20-day average may try to act as some resistance.




The Dow Transportation Index had a huge positive reversal day on Friday as it recovered from an early 2.4% loss on Friday morning. The 200-day EMA was tested and held convincingly.



The EFA (I-fund) has rebounded strongly off its recent lows - holding at the 200-day EMA, but Friday's rally stalled at the 50-day EMA. With the late rally in U.S. stocks it seems reasonable to expect the 50-day EMA to be taken out on the upside on Monday - barring any major news event. We saw two open gaps on the downside get filled in May so far. Now there's an open gap above near 66.50, but aslo a major open gap down by 62.00 that may need more time before it gets revisited.




The High Yield Corporate Bonds has been pulling back all month after the negative reversal on May 1, but on Thursday and Friday it successfully tested the 50-day EMA. The longer-term rising support line was broken so there are some technical issues, but barring any major news in the next day or so, this has some short-term positive momentum going into the new week.




The AGG (Bonds / F-fund) moved slightly higher on Friday ending a positive week for the F-fund, but you can see that it has been struggling to breakout and hold above that March high.




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

Tom Crowley


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