TSP Talk Blog

It could have been worse, but that was bad. Monday opened a little flat - which was kind of a surprise because we did have a setup to either gap up to the upside, or sell off completely, but instead it was a flat open that started to get bought right away. The Nasdaq peaked early but the other indices rallied sharply into the early afternoon and we saw gains over 1% in many indices. That started to fade as the afternoon went on, and by the close we saw some nasty negative reversals.

The Dow ended the day up an impressive 306-points, but that was about half the gains it had earlier. The Nasdaq got crushed, the S&P 500 gave up a 1% gain and closed with a 0.54% loss, and the small caps were up on the Russell 2000, but the DWCPF (the S-fund) lost 0.6%. The Transports blasted off and closed at a new high, but gave up most of its bigger early gains like the rest of them.

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Yields were up sending bond prices and the F-fund lower again, and as yields rise the growth stocks are feeling the pain, so we continue to see a rotation out of growth and into value.

Internally it was surprisingly positive. Even in the Nasdaq, which was crushed, the trading volume shows more volume in advancing stocks than declining while the number of declining issues only narrowly outpaced the advancing.




The Equal Weighted S&P 500 Index (all 500 S&P stocks but weighted equally rather than how the S&P 500 Index weights them) was up moderately on the day and made a new all time intraday and closing high, so the big tech stocks are having their negative impact on the indices.

An email security hack against Microsoft didn't help tech stocks yesterday, but of course opportunists used that news to buy, and push the price up on, cyber security software stocks.

One alarming chart is the High Yield Corporate Bond Fund. This is something that Wall Street watches closely and is an indication of the strength in the credit market, which is huge for the stock market. This looks like a completed, if not breaking, head and shoulders pattern, and this one was down all day, unlike some of the stock indices, so as we've mentioned before, the stock market can take its cue from this chart so it's a little worrisome development if this continues lower.




Oh, and just an FYI, the short-squeeze play is still on. Gamestop (GME) was up 41% yesterday. Express (EXPR) was up 65%, and AMC was up 15%.

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The S&P 500 (C-fund) gave up some big early gains to create that ugly negative reversal candlestick on the chart. It climbed above, then back below the 20-day EMA and some other resistance, and that's worrisome. It could have been a knee-jerk reaction to the Microsoft security hack news, and if that's the case, perhaps today we'll see a bounce right back up. Those two long kangaroo tail reversal patterns "should" provide a low for this leg, so if that doesn't hold, we may be losing the uptrend, and the dip buyers may start to hibernate. Until then, as long at it remains above the 50-day EMA, investors would consider this a buyable pullback.




The DWCPF (small caps / S-fund) rallied early but failed in that area we were worried about near 2130. It closed back below the 50-day EMA after what looked like a clear positive reversal. It should bounce right back if the bull is still intact, so if it doesn't, it is telling us that something is wrong.




The EFA (I-fund) was down modestly but once again held at the 50-day EMA. There is some short-term descending resistance that is giving it some trouble right now.



The dollar was up big again as the play on the economic recovery and rising yields continued. You can see some positive upside targets above.


The Dow Transportation Index exploded to the upside early on Monday, and that's the kind of move you'd expect after several failed attempts at a breakout. But just like the rest of the market, the Transports succumbed to the negative reversal yesterday and it barely held onto that new high. On the positive side, it was able to close above that old resistance.




The yield on the 10-year Treasury hit a new closing high yesterday and BND (bonds / F-fund) was down sharply on the action. Ugly chart, probably due for relief, but is it worth it?




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

Tom Crowley


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