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TSP Talk - Huge weeks start with huge reversal

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Monday looked a lot like a Turnaround Tuesday as stocks jumped out of the gate and galloped toward the prior highs as if nothing were going to stop them. But something did. By the time it was over we saw a severe negative reversal in the indices, although the Dow did manage to hang onto a small gain. The Nasdaq saw a near 500-point range from high to low, which was about a 5% move during the swan dive.

It may not have sounded like a political headline, but the fact that stocks were soaring on Monday again, and California's governor later announces another shutdown plan for that state, was no coincidence. As we talked about before, this is how the summer is going to play out. Almost every headline was coronavirus related and negative yesterday, but the California one seemed to be the tipping point.

After the bell yesterday, the Trump team countered with an announcement that drug makers will start coronavirus vaccine production by end of summer. The futures were moving higher initially on the news.

So it's going to be a punch, counter punch battle until November, and that is why the VIX remains high as investors expect the swings to continue. Heck, we'll take some volatility. It can set up good trades, but intraday reversals like that aren't helpful since we can't do much about them except to try to anticipate them, and that's not so easy.

One interesting tie between the big early gains followed by the shut down announcement - the chart of the S&P 500 hit the June highs and reversed right back down as if on cue. Double top pullbacks are real. It doesn't mean it's a top - it could be - but it generally just means some kind of pullback is due, and it happened yesterday.

The way the day was going, who would have saw a big negative closing day yesterday with momentum fully on the bulls' side in the early action?

Our TSP Talk Plus service were sellers at the open yesterday in our ETF System and we also got rid of some of our TSP stock funds, but thanks to the magic of the TSP's 4 hour (up to 28 hour) delay in processing our transactions, we had to sell those TSP funds at yesterday's closing price losses, rather than when we looking at big gains and seeing a test of the previous high in the S&P.

For any of you that are new to this, here's what I mean by the 4 - 28 hour delay:

If you make an IFT at 11:55 AM ET on a Monday, you sell your old funds, and buy your new funds at Monday's closing prices, and that is a 4 hour delay. You're in your new funds the following day (Tues.) Of course if you make the IFT when the market first opens at 9:30 AM, then you have a 6.5 hour delay.

If you make your IFT at 12:05 PM ET, 5 minutes after the deadline on Monday, you sell your old funds, and buy your new funds at Tuesday's closing prices, and you're not in your new funds until Wednesday morning. So be careful about when you enter your transactions. As we saw yesterday, a lot can happen during those waiting periods.

At least if you know the rules you know what you're up against. The TSP doesn't really appreciate those of us who move our money around, and with some odds stacked against us like the deadlines, you can perhaps understand why they'd discourage us from trying.

In Monday's commentary we talked about a lot of the pluses and minuses we were seeing and initially the pluses did what we had hoped, which was to see breakouts from bull flag formations and test the prior highs. But in the blink of an eye the pluses turned into the minuses and it looks like the double top pullback came sooner than we expected. You can go back and read that in our archives if you missed it.

The S&P 500 (C-fund) gapped up higher on Monday, shot all the way up to the June peak, and started a double top pullback, right on cue. I thought that might be how the entire week played out, but it all happened in one day. Support lines are still holding so it's tough to speculate what happens next, although the bears did take back some momentum yesterday.

The DWCPF (S-fund) reversed down over 3% from its highs on Monday. This one hasn't reached its June high yet and now it is resting on some important resistance, with the 1350 area looking like the line in sand support.

The EFA (I-fund) was down on the day but because the selling came rather late, the I-fund price may not reflect the loss it may end up with once they add fair value on Tuesday. We'll see. 61.50, 60.50, and 60.00 appear to be the support levels to watch.

The Dow Transportation Index had broken above its 200-day EMA in early trading, but here it is closing right back below it again.

The BND (bond ETF) was up slightly as investors seemed more interested in stocks yesterday. First they were buying, and then they were selling. Maybe the bond market will react more today?

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to:

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

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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Yahoo Finance Realtime TSP Fund Tracking Index Quotes