TSP Talk Blog

The better than expected CPI numbers sent the stock futures higher and the indices opened to the upside, but they peaked quickly and the selling started right after the opening bell. There was no buying near the close this time and the Dow ended the day down 292-points or 0.84%. We saw losses closer to -0.5% in many of the broader indices. Bonds rallied and the dollar closed flat.

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The Consumer Price Index showed less inflation than expected which got investors excited for about 90 minutes, but the bears took advantage of the rally and started to sell, keeping the short term downtrend alive.

Internally it was bad news as the NYSE breadth was more than 2 to 1 in favor of declining issues, and the share volume was greater than 3 to 1. The Nasdaq wasn't a whole lot better and once again we're seeing triple digit new lows on the Nasdaq.

The dollar moved lower in early trading on the weaker CPI numbers, but once again that orange moving average held and it bounced back to close flat on the day.




The yield on the 10-year Treasury also sold off on the CPI data, but it did not bounce back so the bond market and the F-fund had a good day.






The S&P 500 is flirting with its 50-day EMA and that is about where the bulls have been taking their stand during prior pullbacks. With seasonality so poor over the next week, it's possible that we are seeing some front running of that selling. In other words, they are selling now rather than waiting for the actual calendar that tells the rest of us when the weakness normally shows up. The question is whether that means we should be buying the weakness this week?



Of course the other issue is what I have been worried about recently - the end of the month is the end of the fiscal year and budget, shutdowns, and the debt ceiling talk will take center stage.

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The S&P 500 (C-fund) closed at the bottom of the gap that it filled on Monday - just below 4450. The 50-day EMA is at 4422.75 and that may get tested this week, and the question is whether the string of holds at the average can continue here in the throes of late September? Keep an eye on Apple's stock. Its low yesterday was 146.91 and the 50-day EMA is at 146.75. If that gets taken out, it could be trouble. If it bounces, the pullback in the S&P 500 may be over.




The DWCPF (S-fund) withstood a severe 1.27% decline in the small caps' Russell 2000 Index, although both closed below their 50-day averages yesterday. It's close enough that we don't want to confirm it as a break down yet, but in a day or two we need to see it bounce back or it too could be in trouble. We see the open gap and the lower support line, and they are quite a way down.




The EFA (EAFE Index / I-fund) was down and closed just above the June and August peaks, which we'd want to see hold as a technical support level. There is an open gap or three below, so I'd be surprised if it can hold.




The BND (bonds / F-fund) rallied nicely and took out the overhead resistance after the CPI numbers were released. Having held above the 50-day EMA for weeks, this looks bullish for bonds, but if yields continue to tumble, how much growth can we expect in the economy?




The Dow Transportation Index is back to its lagging ways as the breakdown from the pennant like formation continued. It looks like a test of the August and July lows would be a good possibility.




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

Tom Crowley



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