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TSP Talk: Can bulls break 4-week losing streak?

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Stocks rallied back strongly on Friday to help alleviate what had been developing as another miserable week for stocks. The big gains (Dow +359) also helped repair some technical damage that had been done to the charts and created a positive reversal formation on the weekly chart. That's the good news. The bad news is, there are still some potential downside targets that may need to get hit before this correction is over.

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The S&P 500 just completed its fourth straight negative week for stocks but Friday's action did help the technical picture. The positive reversal candlestick on this weekly chart is encouraging, and on the surface it could be indicating that a low is in, but we may have to see a couple of more weeks flirting with those lows before the rally is ready to resume.

However, there is also bearish case that can be made. Notice how often that 50-week moving average (purple) was tested during pullbacks over the last three years. Last week's low on Thursday was still 100-points above the 50-week average. I wouldn't bet against that average getting tagged in the coming weeks, but even if it doesn't, we could see last week's lows get retested. Possibly this week, or even a few weeks out. You can see those red circles of similar situations above.

The presidential debate this Tuesday could impact the markets, but as I said before, I don't even know what the market is looking for in the election. A dominant performance by either candidate may give more clarity as to who may have the better chance to win. Most of the large Wall Street firms cover their butts by supporting both candidates so they have some favor no matter who wins, but the market in general may use any clarity to help investors position their portfolios more accordingly. For example, how much a money manager invests in oil or healthcare related companies could shift based on the results of the debate, so look for some of that on the Wednesday after the debate.

The October seasonality chart shows that the first week of October has a decent historical record, but as I posted on Friday, the election year lows have tended to come a week or two into October, and the entire month can be a very choppy period. After the election however, the record gets much better -- that is assuming a winner is declared right away, and that may not be the case this year.

The S&P 500 (C-fund) is in an interesting situation. I talked above about looking at the weekly chart where the positive reversal late last week could provide some follow-through up side this week, but that resistance near the 50-day EMA, the old support line near 3325, and the descending resistance line coming off the high, is nothing to ignore. Whenever it's below the 50-day EMA for more than a few days, it can get tough to get back above it right away. If we do see some strength early on Monday, that would not be unexpected, but the close will be more important. Can it close back above that 50-day EMA after six consecutive closes below it?

The DWCPF (S-fund) closed right below the 50-day EMA and like the S&P 500, there is some descending resistance at Friday's highs. A positive gap up opening would tell us a lot, but again the close is more important. A close above Friday's highs would be a green light for many traders.

The weekly chart of the S-fund also has a very positive reversal pattern, but we may see this come down to test the bottom of that channel and 50-week EMA again very soon, because it's very possible that it's going to get there at some point, so the sooner the better if it is going to do it.

The EFA (I-fund) had a strong positive reversal day and it actually was the first index to come down and test its 200-day EMA - and it held so far. It has closed below its 50-day EMA for five straight days so it's too early to say if this bounce off the 200-day EMA is going to be the low, because it is now in a downtrend and in some technical trouble. But that positive reversal does mean we could see more of a bounce at some point this week, but maybe not enough to get it back above the 50-day EMA right away.

The Dow Transportation Index is in a tight situation as overhead resistance is colliding with a support line.

The VIX fell back below its 200-day EMA and is now in an apex of higher lows and lower highs so it could stay in that range for a few more days.

BND (F-fund) has been holding steady below that 50-day EMA, but above the bottom of the trading range. Not much happening here right now. It actually looks like a possible head and shoulders pattern, which would be bearish for bonds, but as I've said before, technical analysis doesn't seem to produce what you'd expect on this chart.

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

Tom Crowley

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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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