TSP Talk Blog

Stocks start the new week with a sharp decline with very little attempts by the bulls to do any dip buying despite strong support being right there for them. Bull flags are failing and those flag pattern have just not been doing well over the last year. The Dow lost nearly 700-points and we saw crooked number percentage losses across the board in the US indices. Bonds continue to sink as yields make higher highs.

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After weeks of the bears scratching their heads at the strength of the rally off the October lows, they saw some hesitation from the bulls in recent days and took advantage. Dip buyers had been active all year, pushing the indices up despite the plethora of negative information that suggested that the Federal Reserve was going to stay hawkish, keep interest rates elevated, which could potentially kill the economy.

The economic data did suggest that inflation was still alive and well, but there had been little evidence that economy was failing. But yesterday news out of Wal-Mart and Home Depot seemed to get investors back on the concerned side, and the recent pullback on the mostly bullish looking charts had many, including myself, believing that the upside could continue to baffle the bears, but yesterday we saw something different and the indices are now testing some do or die levels.

Yes, we had several warnings from internal numbers and negative diverging indicators, but I always say if the charts and indicators are not telling the same story, you have to go with the charts since they are generally telling the most complete story of price action. Yesterday may have changed that, but it's not totally over as the charts flirt with key support at these new lower levels.

The higher high on the 10-Year Treasury Yield told us a lot yesterday, although it is an interesting dichotomy because higher yields can mean both that the bond market is expecting higher interest rates from the Fed, but also higher yields can mean that the economy is strengthening, and watching stocks sell off on signs of a resiliently firm economy that refuses to die, seems counter intuitive, but it is all about the Fed and what they may do next and the data is suggesting that they may stay hawkish.



The F-fund via the BND ETF above, remains above the prior lows, but if yields continue higher, that probably won't hold.


The S&P 500 (C-fund) lost 2% yesterday making it the biggest loss of the year, and you can see that it fell into, and just below, some key support that really needed to hold. After falling below the 20-day EMA on Friday, it found no support as of yet at the key 50 and 200-day EMAs yesterday. There is a chance that this may be a shake out move to get rid out the weaker bulls as we saw similar shakes out in November and December that turned out to be buying opportunities. I think the jury is still out on what this pullback really is. The bull flag is still in the picture, but looking less impressive.




Looking out a little further, the S&P 500 has not yet hit the longer term support line of the rising channel, but it's getting close. Is that the target, or is that just another support line that will give way to the selling?




The Dow Transportation Index got clobbered with the rest of the market and it's interesting when an index looks invincible for a while, then a couple of weeks later it appears hated and sells off vigorously. The bull flags that we saw on the S&P 500 and this chart are once again proving unhelpful at the moment.




Whether this is a shake out that can be bought, or a warning to investors to get the heck out of the way, may be a little too early to say. I'm always cognizant of what the larger money managers are trying to get us smaller folks to think and do, because they may have a plan to take advantage of it. If they were trying to get investors to buy and send stocks higher in January and into February, they succeeded. So what are they up to now?

I am not married to any position just yet, but the bear case is certainly gaining some steam again. However, some bears were spiking the football yesterday and it may be a little too early for them to celebrate.

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DWCPF (S-fund) is still above some key support but that didn't give any solace to those who took the 2.77% loss yesterday. The chart doesn't look horrible, but it is running out of time and room for that bull flag and support to hold.




The EFA (I-fund) held up better yesterday than the US stocks, but it is also looking over a precipice of that support near yesterday's lows.




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

Tom Crowley



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