TSP Talk Blog

Stocks were down on Friday capping a second straight losing week for the S&P 500. The Dow lost 166-points on Friday, or 0.48%, and small caps held up well with just a minor loss in the S-fund, and the Russell 2000 was actually positive. The S&P and Nasdaq lost 0.91%, and if you're an optimist you may look at this coming week as a bullish opportunity since there have not been three down weeks in a row all year in the S&P. Bonds were down (yields up) and the dollar rallied adding that pricing pressure on almost everything.

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The internal numbers were flat to negative and volume was of course extremely high because of the expiration day, so it's tough to make too much of that. The NYSE breadth was about 2 to 1 decliners over advancers in up / down issues as well as share volume. The Nasdaq was more flat.

The dollar had a big day so stocks had a pretty good headwind, along with many commodities.

And speaking of headwinds, as you all probably know by now, we have some seasonality issues this week - the week after quadruple witching expiration in September. But just so the market doesn't make it too easy on us, the normally good week during expiration week was not very but good, so that messes with the historical trend.


Chart provided courtesy of www.sentimentrader.com


As you'll see in the index charts down below we have some decent support in the S&P 500 and the S-fund's DWCPF Index, but the Equal Weighted S&P 500 and the Russell 2000 closed just below the support of their 50-day EMAs, so we have a mixed bag heading into this normally troublesome week, and if it weren't for the nasty seasonal tendencies, it would look like another chance to buy low, but with this headwind, is there going to be a chance to buy even lower after this week?

The yield on the 10-year Treasury Note also spiked on Friday, and it closed above the 100-day EMA for just the second time in a couple of months, but it is below the top of that trading channel which has been holding as resistance.




The futures opened to the downside last night although negative Sunday futures don't always translate into negative Monday morning openings.

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The S&P 500 (C-fund) flipped back over after a couple of days of trying to bounce off the 50-day EMA. Now it is testing the average again as we head into the new week, which has some historical problems. Coincidentally, or by design, the S&P did the same thing after the last quadruple witching expiration day in June. Back then it opened up on that following Monday morning with a big rally and it never really looked back. Is that what is in store this time as well, or is this the season to be cautious instead?




The weekly chart reminds us that we haven't had a three week losing streak in the S&P 500 all year. The last time we did get a 3+ week losing streak it was in September of last year where we saw 4 straight weeks of losses, so the seasonality calendar dented the market in September of 2020.




The DWCPF (S-fund) doesn't look half bad after closing above its 50-day EMA for three straight days, but I have some concerns here with one being seasonality. The other two are: 1) the open gap near 2190. And 2) the current formations looks more like a bear flag than the "V" bottoms we saw at prior lows.




The Russell 2000 small caps are not our S-fund, but the S-fund probably won't get too far if the Russell is not behaving well, and the problem here is not only a similar potential bear flag, but this has closed below its 50-day EMA for four straight days. A rally today above the 50-day EMA, and it wouldn't take much, could change that negative streak.




The EFA (EAFE Index / I-fund) got hammered on Friday with that 0.36% rally in the dollar. It's hanging onto another test of the 50-day EMA, and basically looking over a precipice where support must hold or we're likely to see that gap (red) near 79.50 get tested. The decline on Friday filled the first gap just below 81 (blue.)




The BND (bonds / F-fund) declined on Friday with yields popping higher. It's in the trading channel now, that could be considered a bear flag, but still trading above the 50-day average, which has held for months.




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

Tom Crowley



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