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TSP Talk: Bulls are put to the test to start the week

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Another expiration week ends with a thud as stocks tumble after a positive open on Friday. This is a tough month for stocks historically and the bears are keeping that reputation alive as the S&P 500 closes negative for a third straight week. The small caps had other ideas as we saw the S-fund end the week with a solid 2.85% gain and lost just 0.27% on Friday while the S&P and Nasdaq each lost over 1%. There was an afternoon push higher but the Dow closed down 245-points.

Daily TSP Funds Return
After months of nearly straight up action, someone flipped the September switch and stocks have struggled all month. The rally off the March lows has been almost relentless and it reminded me of 2017 when market timers never really got decent buying opportunities - just minor dips down to the 50-day EMA every several weeks.

The comparison of the 2017 chart showing those pullbacks to the 50-day EMA looks similar to this year's chart, and here the S&P is now, hanging around that 50-day EMA. The question is, will the bulls be able to treat this dip like it did repeatedly in 2017, and as it has done since March?




The last time we've seen three negative weeks in a row? Last September. Despite a very strong year for stocks in 2019, there were three streaks of at least three losing weeks in a row, and two of them were 4-week losing streaks, so in the grand scheme of things, this recent decline may not be a deal breaker for the bull market. The complexion of the market may be trying to change, but if not, we may be at the elusive buying opportunity that many have been waiting for.

It may be an easier call for those dip buyers if we weren't about to embark on the final stretch of probably the most contentious elections in our lifetimes. The gloves will be off for sure, but will the stock market care? Does it already know who will win? Does it even care who wins? And if it does, will it bounce around as the punches get thrown? Or is it only concerned about the Fed, the stimulus packages, a vaccine, and getting the economy back on track?

My thinking is, this is normal action so far, but this week could be the test. As those charts above suggests, the 50-day EMA is still in play, and if the bulls can pop the S&P 500 back above it, it could be business as usual for the bulls. But if the bears are successful in pulling it below the average for 3 days or more days, then we may have a problem.



The S&P 500 (C-fund) is in quite the position. It closed below the 50-day EMA for the first time in several months on Friday, although just barely. There is a clear bear flag on the chart which may have broken on Friday. The trend is up and there is a lot of support in the area around 3300. There is the potential for a rebound for stocks this week - but if it doesn't rebound, the technical picture will deteriorate noticeably, and traders will see that and bail.




Zooming in we see the positive reversal tail from Friday as it tried to crawl back above the 50-day EMA and the bear flag, but didn't quite get there. There is also an open gap near 3380 that could be a relief rally target.




The weekly chart shows that the S&P 500 has moved back down into that open gap area from back in February. That could provide some support again, but we also see that the bottom of the rising trading channel (blue) was broken last week. So, it looks like 3290 - 3300 area will be the key again here.




The DWCPF (S-fund) had a really good week last week although it closed well of the Friday's morning highs, but it did hold above some key support. It will be really interesting to see if the small caps can continue to perform well in this uncertain environment. That would certainly be a positive sign as it means investors are still willing to speculate.




The EFA (I-fund) has danced within those two horizontal lines for weeks now with only a few exceptions that didn't take long to correct back into that range. It looks bullish to me, and a potential breakout looms, but if the S&P 500 stumbles, I doubt this one could breakout without it.




The Dow Transportation Index has been surprisingly strong throughout the recent three week losing streak for equities. However, there is a rising wedge that, if it breaks on the downside, could be some big trouble. This will be a big tell for the market in general. If that 11,500 area can hold, the rest of the market probably will remains buoyant. If it breaks down, the 50-day EMA could be a downside target, and being the market leader, investors won't be pleased with that.




The High Yield Corporate Bond Fund was down on Friday but it is still hanging around the "dip" zone. The 84 area looks key and like the Transports above -- if this holds up, the stocks market will likely hold on as well.




BND (F-fund) took a hit on Friday but technically it remains in that trading range. The only thing this has going for it is the support at the 50-day EMA. If that hold, bonds should be OK, but that formation also looks like a possible big bear flag.




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

Tom Crowley



Posted daily at www.tsptalk.com/comments.php

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SPY (C Fund) (delayed)

(Stockcharts.com Real-time)
DWCPF (S Fund) (delayed)

(Stockcharts.com Real-time)
EFA (I Fund) (delayed)

(Stockcharts.com Real-time)
BND (F Fund) (delayed)

(Stockcharts.com Real-time)

Yahoo Finance Realtime TSP Fund Tracking Index Quotes