TSP Talk Blog

Stocks rallied at the open on Friday but there was some selling of that early strength and the rest of the day saw some tentative trading heading into the 3-day weekend. The action leading up to a long major holiday weekend can produce unpredictable trading days and often reverse the current trend. We didn't get a whole lot of that last week, but we are in a moderate down trend now and stocks were up on Friday. The Dow gained a healthy 95-points but that was about half of the morning's high point.

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The Dow is now on a 5-week losing streak and incredibly that is the longest weekly losing streak for the Dow since 2011, yet we're a stone's throw away from all-time highs.




As with any significant decline, particularly off of highs, it's either a good time to be buying a dip, or the start of a topping process. According to our friends at sentimentrader.com, historically this kind of a decline in the Dow off of the highs is a mixed signal, but in more recent history - specifically the last 40 years - it has been more bullish.


Chart provided courtesy of www.sentimentrader.com


So, the "sell in May and go away" axiom has certainly proved to be prophetic this year, and there are some seasonality issues early this week and then after the first week of June, but seasonality shouldn't be used as a primary indicator unless it's Thanksgiving, Christmas, or New Year's weeks. Still, it can be a breeze in the face of, or the back of, the market at other times.

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The S&P 500 (C-fund) is only on a 3-week losing streak, not a 5-week like the Dow. Not that the chart looks any better than the Dow, so the streak is not that important, but what is important is that the chart does look bad. There are a couple of bright spots that the bulls will hang their hats on. One is that the 100-day EMA continues to hold up. Last week it bounced off the 100-EMA for a fourth time since February. The other thing is that the MACD Histogram chart shows a positive divergence where the indicator is making a higher low while the S&P is testing the prior low.



There is an open gap just above 2850 and that could be a target of any rebound, but that is also where the 50-day EMA is currently crossing so it may be tough to get back above there. All of this is happening within a bear flag and possible head and shoulders pattern so there are several strikes against it.


The weekly chart of the S&P 500 shows how important that 2800 area is. It seems to be a make or break area, and last week it held as support again. It looks like a good place for a rebound, but if it fails, it could be revisiting 2700 or 2600 again.




The DWCPF (S-fund) is in a similar pattern, but it has broken below a bear flag, plus if broke below the 200-day EMA so there are more obstacles There is an open gap by 1380 and that may be of some help if this is going to make an attempt to crawl back above the 200-day EMA.




The Dow Transportation Index has been getting hit hard lately and that head and shoulders pattern is filling out. We could see that neckline area near 10,000 act as support, but a breakdown below that and the H&S downside target would be about 9500 - 9400.




The energy sector has been dumping recently. We see yet another overhead open gap that could be a lure, and that 61 area may act as support, but a move below that and it's big trouble.




Some folks believe, as goes Apple, so goes the market. If that is the case, the market could be in some trouble. There's not a whole lot of good things happening on this chart. It broke the support line of that rising trading channel earlier this month, it made a lower high, it's below the 200-day EMA, etc. Other breaks below the 200-day EMA led to some churning, then a strong rally, except for the one in November. It's in that zone right now, and if that early March high can continue to hold as support, it might have a chance. That may be too much to count on.




The EFA (I-fund) fell below some longer-term support in May, and has since created a bear flag, but it did manage to close back above the 200-day EMA on Friday. We're seeing a lot of bearish head and shoulders patterns on Asian market charts, but Germany has been a different story.




The German DAX is actually holding up well so far as it hasn't even broken any support yet. The DAX is a big part of our I-fund and is helping keeping that above chart from rolling over - but can it last?




The yield on the 10-year Treasury was up on Friday after Thursday devastating decline. That rally put pressure on the F-fund. I'm not sure why the AGG was up on Friday unless the prior day's quote needed to be adjusted. Either way, bonds prices took a breather on Friday after the big gain on Thursday.



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

Tom Crowley


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