TSP Talk Blog

Stocks started Thursday on the positive side, but the highs were hit rather quickly and the selling kicked in. The Dow lost 152-points or 0.43%, and the S&P 500 had a similar percentage loss. The Nasdaq and small caps held up a little better. The dollar was down helping the I-fund out some as well, and bonds were up after a sharp move down in yields.

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Internally the numbers were much better than the indices would indicate. The NYSE was flat on the up / down issues, but the Nasdaq was positive, and trading volume on both was quite strong with the Nasdaq showing twice as much up volume as down, despite the 0.25% loss in the index.

Bonds were up and the yield on the 10-year Treasury fell sharply and is now trading below its key moving averages. It also broke what looks like a rising support line, so here we are again scratching our heads wondering why the bond market is basically positioned for economic weakness, rather than growth.







The dollar pulled back, filling in Wednesday small open gap, and there are still open gaps above and below the current level so an argument can be made for a move in either direction. The short-term trend is up for the dollar, but it is still pinned closer to multi year lows, which were hit in June near 24.10.




Stocks need to breathe and whether you are bullish or bearish, seeing a pullback shouldn't be too concerning yet, as long as support and key moving averages are holding. That is the case now, but that could change if the charts start to break.

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The S&P 500 (C-fund) rallied early, hit the top of that long-term trading channel, and backed off. The 20-day EMA is just a few points below the closing price from Thursday, and then we have the August peak at 4480, followed by an open gap near 4450, plus a whole lot more support below that. It's just a matter of which will hold and which, if any, will fold. Momentum is on the bulls' side and buying every dip has paid off for months. But seasonality is on the bears' side for the rest of the month.




The DWCPF (S-fund) was flat on the day but it gave up some big early gains with the afternoon sell off. The early rally filled Wednesday's open gap, then it flipped over and created a negative reversal day. More open gaps below, plus the 50-day EMA is also a possible target.




The EFA (EAFE Index / I-fund) was down modestly but the weakness in the dollar helped cushion the blow a bit. There's always open gaps on this chart because of the nature of overseas markets in relation to our trading hours, but they still get filled quite often so those are potential targets. There's one open above and at least three open below.




The BND (bonds / F-fund) rallied sharply as yields fell, and the chart is now testing the top of that wedge formation, which I thought could be a possible bear flag, but in order for it to break down as bear flags tend to do, yields would have to rally, and they aren't looking so good, so the next couple of days will be very important for the bond market and the F-fund.




The Dow Transportation Index broke down after seemingly building a bullish base, but as we mentioned before, that also looked like a bear flag it did close below the 100-day EMA on Wednesday so there were warning signs.




The High Yield Corporate Bond Fund did just fine yesterday and that may be the bullish canary in the coalmine. If the credit market is strong, stocks can usually remain buoyant.




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Thanks for reading. Have a great weekend!

Tom Crowley


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