TSP Talk Blog

Stocks pulled back despite some strong retail earnings reported yesterday, but as we've been saying, the charts are stretched so some selling isn't a surprise. The question is, how much should we expect? The Dow shed 211-points and small caps lagged possibly because of a drop in the price of oil and small bank stocks. The dollar was finally down so the I-fund held up better than the U.S. stock funds. Bonds finally moved higher after a drop in yields.

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As we get closer to the bullish bias of the holidays, we do have to get through an historical below average week, which started yesterday, but it flips around next week, so it's tough to get too concerned. However, as I always say, the more obvious the information, the more the market can mess with you because everyone has this information. That means it could either be a self-fulfilling prophesy, or other traders will try to take advantage of it by front running the data, and making a move before we do. So, these are tendencies, and not guarantees.


Chart provided courtesy of www.sentimentrader.com


Internally yesterday it was quite negative, and of course that happens on down days, but the 242 new lows on Nasdaq may be more concerning. Why? Because of those pesky Hindenburg Omen Warnings. With the Nasdaq fairly close to all time highs, and many stocks making new highs, a large number of new lows at the same time suggests some internals trouble. These warnings don't always suggest a crash is coming, but almost every market crash has been preceded by one of these warnings.




The rally in the 10-year yield took a day off after rallying for several days. The new trend is up for now, and at some point the stock market may not like it. Ironically stocks fell yesterday on a day yields were down.



The dollar was also down after a sharp rally over the last week. This is interesting since everyone is concerned about inflation, and we'd expect the dollar to go down if inflation is the concern, not up. Maybe it is a short term smoke screen to get traders leaning the wrong way? Because gold and silver, commodities that tend to rally during inflationary periods, have actually been moving higher, as we'd expect.


The price of oil has been rolling over from the recent highs. Yesterday's inventory reports showed a mixed picture with impending international oversupplies caused by COVID cases rising in Europe, but also an unexpected decline in U.S. stockpiles. Perhaps they cancel each other out, but the price of Crude did fall 4% yesterday, which of course is good new for gas prices - if this pullback can hold.

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The S&P 500 (C-fund) slipped a dozen points, which is nothing compared to how far it has come since the early October lows, but the double top could give it a reason to pause and pullback. At least until next week when the bears tend to step aside for the holiday. Of course a bad headline during the holiday week can push things down if trading volume is light, so as always there's no guarantees. Just positive tendencies. There's still a lot of overhead resistance, but except for the double top, all the resistance is still rising.




The DWCPF (S-fund) pulled back from that small bear flag that we've been watching. It did close near the bottom of that blue trading channel, which is its best case scenario. Even a move down into the green circle wouldn't be too bad with that old resistance line near 2330 sitting there. But if we start seeing this trade below the 50-day EMA, then there are some warning signs that something may be wrong. Right now, there are no signs of that.




The EFA (I-fund) was down slightly as it took advantage of the decline in the dollar for the first time in a while to outperform the C and S funds. I noticed how similar the current setup is to the peak in September, so be on the lookout for a possible breakdown below 80.50.




BND (Bonds / F-fund) got the relief rally we mentioned yesterday, but the chart is in bad shape with a possible bearish head and shoulders pattern forming. The chart could run into some trouble after a rally up to the 50-day EMA where the left shoulder peaked near 85.40.

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

Tom Crowley

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