06/21/13
The Dow lost 354-points yesterday, which makes 560-points in the last two days. Percentage-wise it isn't horrible, but the charts have started to break down.
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[TD="align: right"] +0.0042%[/TD]
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[TD="align: right"] -0.62%[/TD]
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[TD="align: right"] -2.49%[/TD]
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[TD="align: right"] -2.64%[/TD]
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[TD="align: right"] -2.75%[/TD]
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After a two-day move like we have seen, a snap back rally is very possible, but the charts are breaking down and that means rallies may not last long.
The triangle formation on the S&P 500 completed the fake-out / breakdown pattern we have come to expect. Now the bottom of the rising support line - as well as the 50-day EMA, could act as resistance on any rebound.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This breakdown is not insignificant. The intermediate-term trend is one that had held since November of last year.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I won't go into the indicators right now. As I have said before, when the charts and the indicators are not in agreement, I choose to follow the charts. And that hurts because the indicators I have come to rely on most over the years, sentiment surveys and the smart / dumb money out / call ratios, were telling a much more bullish story than the charts - particularly the 1987 chart comparison that I have talked about for the last week.
Here it is again: This is the current chart of the S&P 500...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
And here is the 1987 chart. I included on this chart the 1.7% snap back rally the S&P saw on October 13, 1987. That is something we might expect in the coming days, with the size of the rally depending on how deep this sell-off the relief rally starts.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
But that rally lasted exactly one day in October '87.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As I have said before, crashes are rare and more than likely we won't see one. But the 1987 crash chart comparison is too similar to today's action to completely ignore. Buying this dip could prove to be profitable, but if the '87 blueprint plays out, it will leave certainly a mark on your account. That's your call.
Thanks for reading! Have a great weekend!
Tom Crowley
Posted daily at TSP Talk Market Commentary
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