TSP Talk Blog

The S&P 500 came within 5-points of the February high yesterday, and the market was sailing along for what was looking like an eighth straight positive day for the S&P and Dow, but things changed in a hurry, and the double top theory poked its head up for all investors are traders to see yesterday. The Dow lost a modest 105-points, but that was a 470 point swan dive off the highs. The Nasdaq lagged badly again, while the small caps gave up a big early gain.

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It wasn't much of a surprise that Joe Biden officially picked Kamala Harris to be his running mate. I don't know if that had anything to do with the late selling since she was the expected choice, but the timing was quite a coincidence. Of course the double tops we saw in a few indices helped put the pressure on, and the market seems to front run news. Stocks were due for a dip after 7 up days in a row, and the double top was a good excuse. A news event followed which may, or may not, have been a catalyst. If it was in fact news related, the dip could be short-lived.

Double top (DT) pullbacks are a very strong tendencies in charts, and we got one. At least for a day. But as I mentioned yesterday, it seemed too obvious and it's very possible that it could be a trap. There's nothing that says a double top pullback has to be a certain size. It doesn't have to be 1%, 5%, or 10%. Perhaps it is commensurate with the size of the rally up to the DT, I'm not sure, but there is no real rule that I am aware of. I just know that the market doesn't usually make it that easy for traders.

That said, we did get a good sized negative outside reversal day and that does tend to lead to further downside. Again, there's no rule how much lower that should be however, or how long it should last. It could be a top. It could be another buyable dip.

The futures actually rallied after the bell when Tesla announce a 5 for 1 stock split. Tesla is part of the Nasdaq 100 which I have been a little obsessed over recently. Not only because of how well it has been doing, but how it had pulled the market up so successfully over the last few months while the broader market was more sluggish. Recently we saw a bit of a reversal there, but if we look at the chart again - even after the nearly 2% decline yesterday, and three down days in a row, you can see that it is once again in familiar territory. It is testing the 20-day EMA, and just below that, the red rising support line which has held over and over since April when it broke above them.




That will be a good tell today, whether we are starting a meaningful double top pullback or if we can get another bounce from the relentless Nasdaq 100. Stock splits have become quite rare compared to 15-20 years ago, so Tesla announcing the split after Apple's spilt announcement a week or so ago is a little suspicious. Perhaps it is a sign that the companies are worried that buying interest in the stocks could dry up, and this was one last gasp to find more buyers?

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The S&P 500 (C-fund) was off to the races yesterday until that last hour of trading, when we have been seeing some big swings in the indices recently, but before yesterday most of them were up. Add the double top and the outside negative reversal day, and that leaves Wednesday with some headwinds. The trend remains positive and one day doesn't change that, so perhaps this is just an attempt from the bears to fill those open gaps below. If it can happen quickly it can satisfy filling those gaps and stay in the channel.




The DWCPF (S-fund) was having a great day until the reversal. This chart too has a couple of open gaps below - one is just below yesterday's low. The trading channel is still pointing upward and it remains above the June highs, so the bears may not have the easiest time turning the bullish ship around. A pullback, sure. A top, I'm not so sure, despite negative reversal - although obviously not out of the question.




The Dow Transportation Index was having another big day, up 2% near the highs, but it hit the February high as well and stopped. This market leader actually peaked in January, a month before the rest of the indices, so it will be important to see where this one goes next. It could be the tell.




The EAFE (I-fund) finally broke out yesterday, then reversed and it turned into a failure. The dollar was up again as well, adding to the trouble. The I-fund price hasn't been posted yet here as of this writing, but because of the late sell-off in U.S. stocks yesterday, the TSP may not give the I-fund the full loss.




The VIX finally had a big up day, but it remains in the descending channel and below key resistance and the 200-day EMA.




BND (bond ETF / F-fund) posted a third day of losses yesterday as yields rallied, and once that support broke, it got quite heavy. We'll see if the 20-day EMA can provide any support, or if the 50day EMA is next.




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

Tom Crowley



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