TSP Talk Blog

Another day of selling for the indices as we saw more breakdowns, but possible reversals, in the indices. The Dow lost 346 points, which was off the lows, and small caps also had a pretty good bounce off the lows, but big losses none the less. We got that one big rally on March 1st that certainly threw us a curve, but otherwise that's 5 down days in the last six for stocks. The Nasdaq and small caps were the big losers again.

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It's only been a 4% or so pullback and the reaction seems a little over the top. This is normal action, but of course 10% and 20% declines can start with a 4% pullback, and we only have to go back one year to last March to be reminded of just how bad things can get when they get bad.

We get the February Jobs Report today (Friday) and estimates are looking for a gain of 200,000 jobs, and an unemployment rate of 6.3%. This number could add fuel to the fire, or be an extinguisher of the flames, but the market is in a tough spot. Investors want to see that the economy is improving, but not so much that the Fed and stimulus will be discouraged.

And speaking of the Fed; the market didn't respond kindly to the Fed chair Jerome Powell's comments on inflation yesterday. They said they would let it run despite the bond yields rising, perhaps indicating it is time to raise rates, but that to me doesn't sound like a bad thing, so maybe stocks just needed a reason to pullback. The 10-year yield did move back over 1.5% after his comments. There is an FOMC meeting later this month, and that should be interesting.

Two of the indices, ironically the largest cap stock index and the small caps, both reversed after falling below the 50-day EMA, and closed back above it. That is generally a good sign, but even in downtrends, the 50-day can be just a temporary pause.




However, the S&P 500 and Nasdaq, a much broader group of stocks, fell through, and stayed below their 50-day EMA's yesterday, and that' not the best signal.




If we can look at it more optimistically we can recall that both pullbacks last fall fell below the 50-day EMA, then came back a few days later.




So much for the strong historical seasonality in the first week of March. The last few day shave broken a pretty good streak we were having with the seasonality charts, which had been calling the shots over the last several weeks. Not this week.

Some indices, particularly the Nasdaq, have broken down below key levels and need to start to recover soon, or this could be a longer correction than the bulls care to admit.

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The S&P 500 (C-fund) was down sharply again, finding some support at what could be the neckline of a head and shoulders pattern. If that's the case we could start seeing that right shoulder filling in a little more over the coming days, but it could also mean that neckline will be tested again over the coming weeks - depending how quickly the shoulder forms.




The DWCPF (small caps / S-fund) sure can move in either direction, and for the third day in a row it was down. This too has a possible head and shoulders forming so perhaps a right shoulder relief rally is due - but that may need to be sold again in that 2150 area if it stalls there.




The EFA (I-fund) was down and got no help from the dollar...




... which was up a solid 0.65% yesterday, which is a big move for the green back. It is testing the early February highs and we could see a double top pause here, but that angle of incline of the last few days looks to have some momentum behind it.




The BND (bonds / F-fund) is acting poorly and the only question at this point is whether it will get some short-term relief.




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Thanks for reading. Have a great weekend!

Tom Crowley


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