Stocks opened solidly higher on Friday but the situation in the Ukraine escalated again and things went south in a hurry. The Dow was up over 60-points at about 10:30 AM ET, and by noon ET it was down nearly 140-points. A 200-point reversal. Things settled down and stocks came back, but the Dow still lost 51-points on the day.
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The broader indices held up better as the S&P 500 and the small caps were relatively flat by the close. The I-fund gave up 0.23%, but the European markets closed before the U.S. indices started to recover. You'll see below that the German DAX, the London FTSE, and France's CAC posted some nasty reversal days, but had their markets stayed open a few more hours, their charts may not have looked so bad.
The F-fund rallied as bonds actually broke out on the geopolitical news, and while they closed off their highs, the breakout levels held into the close.
The SPY (S&P 500 / C-fund) filled its small open gap from the end of July near 196, but it closed just below the open gap. The news driven sell-off on Friday sent the SPY right down to the 50-day EMA, and like magic, that's where it held. It also broke a short-term descending resistance line and closed right on top of it.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
As I will show in chart after chart below, the PMO's (momentum indicator) are all starting to turn up with a few crossing back above their 10-day averages, which in the past has led to the start of a trek to new highs. The SPY has not quite crossed its moving average yet, but it's close.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The weekly chart of the SPY shows that the long-term rising trend is still intact and the recent pullback found support near the bottom of the trading channel.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Russell 2000 has pulled back sharply three times in 2014 with the last two landing it below the 200-day EMA, but each time it has been able to rally back without too much damage done. The threat of a breakdown turned out to be just that - a threat but no more. Not like the European markets we'll show below.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-Fund) created a wide outside day. As I explained in Saturday's Weekly Wrap Up, an "Outside Day" is a day where the high is higher than the prior day's high, and the low is lower than the prior day's low. Outside days can indicate a reversal is coming, but a reversal from what - the short-term rally, or the longer-term decline? They call that formation a "doji" candlestick - an indication of indecision, and that was due to the news out of the Ukraine.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire is also trading back above its 50-day EMA and the descending resistance line.
The next three charts are the three largest European markets and together make up over 40% of our I-fund. As I mentioned above, these charts put up some nasty negative reversals on Friday, but they all closed before the U.S. indices recovered.
The CAC looked like it wanted to break to the upside of a bear flag, but the news out of the Ukraine sent it back into its fourth consecutive bear flag. I would suspect there will be a little rebound here just based on the rebound in U.S. stocks, but then it will be on its own to try to defy the negative bear flags.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The DAX is in the same situation with both of these charts trading well below their 200-day EMAs.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The London FTSE also posted a very negative reversal just as it was looking to test the 50-day EMA from below. It had come back above the 200-day EMA, but the reversal sent it back below.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
All three of the above charts are in downtrends and very bearish looking charts, but they could be due for some relief, particularly if the U.S. stock market continues its rebound.
The AGG (Bonds, F-Fund) broke out last week and made an authoritative upside move on the Ukraine news. There was a negative kangaroo reversal tail created as the tensions eased during the trading day, but the AGG closed in the middle of the daily range and did not give up the breakout. This action is quite interesting since so many folks have been expecting bonds to top - for years, and the keep rolling. By the way, the AGG has closed above the breakout point for 3 consecutive days, which is getting close to a confirmed breakout.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
It looks like the futures are indicating a positive open on Monday - at least as of 9 PM ET on Sunday night. Will the rebound off the lows continue, or was the recent rally a bull trap? I can see a situation where investors get overly complacent buying each dip when something blows up around the world. And over complacent investors tend to get burned eventually.
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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