TSP Talk Blog

Another day, another sell-off. There was a late rally that nearly cut the losses in half by the close and that was enough for a couple of indices too keep some of Tuesday's gains, but clearly the action is demoralizing for the bulls. The bears have waited for this for a long time and they are getting their money's worth. The Dow lost 1338-points after coming back 1000-points from an earlier 2300-point decline.

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Boy, I do not like writing these commentaries under these conditions. There's very little that's good to talk about. During the day I'm normally keeping a very close eye on the action but recently I find myself escaping to the driving range or watching a movie to keep me sane, and just check in every once in a while. So while I don't have a good feel for the pulse of the market for the day, the charts are telling me the story and it's pretty obvious what is going on.

At this point "policy traction" seems to be the key phrase. Investors are looking for some sign that the decisions being made in Washington, will take hold and stop the ball from rolling down the hill.

I'm looking at the charts and waiting for some kind of sign that there's a willingness to break through resistance. Once that happens we could see a change in attitude. I saw that in the chart of Amazon yesterday, which was surprisingly up on the day.

We're seeing signs of life in other names like Wal-Mart, Walgreens, Cisco, 3M - all positive on the day yesterday. Wal-Mart actually made a new all time high, if you can believe that, so there is some flickering of hope out there.

If we haven't seen the low already, then I'd say we're in trouble. I know, the market has come a long way down already, but the 2018 low became a clear target once other levels of support were taken out. yesterday that 2018 low was taken on the S&P 500, but that late day snap back rally pushed it back above it.
I posted this chart on Tuesday, and despite the error of the year in the chart (it should say 2018 low), the point is still valid...

I said, "The longer term chart shows that the S&P 500 is getting very close to testing the 2018 low - perhaps the target? If not, a break below may be what is needed for that capitulation ("I give up" mentality) I've been looking for."




I'm using the weekly chart here because it's easier to see yesterday's reversal off of yesterday's low after it had broken down earlier in the day. That low yesterday may turn out to be the capitulation low - although I've said that before and I was clearly wrong.




The monthly chart shows how critical that December 2018 low is as far as possibly breaking the series of higher lows since the 2009 bear market lows. Closing the week out above that red line is key.




So, where are you now head-wise? I have to admit that I was pretty despondent at the lows yesterday.




Despondency: "Depression of spirits from loss of hope, confidence, or courage; dejection. A sinking or dejection of spirits from loss of hope."

Yup, that sounds about what yesterday felt like.

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The S&P 500 (C-fund) has been in a steep decline, on high volume for almost a month now. We got a couple of big rallies earlier this month but we still have not experienced two positive days in a row. At this point investors may be looking for some kind of green light, and a move above the sharply descending trading channel could do that, but when?




The dollar rallied again, although it backed off sharply from 28 for a second time this week.




The longer-term chart of UUP shows the dollar near the top of the rising trading channel and if that resistance can hold again, then the I-fund may outperform in the short-term. That's not advice, just an observation.




The price of oil fell dramatically again yesterday after trying to consolidate for several days. It's down to 2002 prices at $20 and change. Demand is down of course, but there is still a price war going on outside of the U.S.




The yield on the 10-Year Treasury rallied strongly as the fiscal stimulus talk becomes extreme and the bond market continues to price in an attempt to keep the economy afloat.




The AGG (bonds / F-fund) was down on the rally in yields, and the bear flag we talked about yesterday, did break down.




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

Tom Crowley



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