Stocks opened higher on Tuesday, but that post holiday morning rally was eventually sold, and the selling accelerated into the close. The Dow, up over 100 at one point, ended the day down 238-points. The Nasdaq held up a little better, losing just 0.39%, but it was a moderately bad day pretty much all the way around. Yields dumped again helping the F-fund rally, and the dollar was up putting a little extra pressure on the I-fund, but the timing of the selling in the U.S. spared it for a day.
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Investors are clearly on edge as the trade war is getting serious enough that Wall Street is starting to price in the possibility that no deal will be made. It had been quite optimistic for most of 2019, but clearly that sentiment has changed.
The economic growth estimates are being reconsidered and as we see bond yields dropping again, we see the dreaded inverted yield curve between the 10-year and the 90-day bonds again. Is this a portend to a recession? Not necessarily, but it does tend to increase the possibility.
As you'll see in the charts down below the S&P 500 is again flirting with that key 2800 level, and it could be the make or break area. We're also seeing head and shoulders patterns all over the charts and they can be interesting formations because they can be bearish - or bullish, depending on the trend. We'll get into that down below.
The S&P 500 (C-fund) is back down testing that key 2800 level after Tuesday's decline. The head and shoulder pattern is getting more clear every day. The question is whether an H&S pattern is bearish or bullish. There will be more on that below.
The weekly chart also shows just how important that 2800 area has been. It can be a brick wall, as we've seen several times, but when it breaks, it really breaks.
The DWCPF (S-fund) rallied above the 200-day EMA in early trading yesterday, but that failed and it made its way back below it by the close, and made a slightly lower low compared to last week's lows. The head an shoulders pattern is clear here as well, and that 1350 area looks to be key.
A head and shoulders pattern is typically considered bearish and traders expect them to break down. Some head and shoulders test the neckline after the right shoulder has formed, and fails immediately like the first chart below. Other test the neckline, then get a bounce back toward the middle of the head - then they eventually break down, like the chart on the right.
Here's a great example of that head test using an old silver chart...
Then there's the fact that head and shoulders patterns can actually be considered continuation patterns - depending on the size. A three year large head and shoulders pattern is bearish, but one that is just a few weeks or months old can be a continuation pattern.
In a descending trending market, like the one on the left below, they are the most vulnerable and more likely to break down. In an ascending market a head and shoulders pattern can form, then bounce off the neckline and make a new high, thus the continuation pattern. I can show an example, but the chart below on the right is what I am describing.
The head and shoulders pattern on the S&P 500 is coming off a rising trend so it's not quite as bearish as it may appear - unless this is a major top, and the triple top we see on that weekly chart above does make it a candidate. Smalls caps can be considered to be in a downtrend since its head in the H&S pattern is still well below the prior highs from 2018.
The EFA (I-fund) had been looking a little better than the U.S. charts. Yesterday's decline was enough to fill last week's open gap and the top of that gap did hold as the low. But it is back below the 200-day EMA and in a bear flag and it's hard to get excited about it yet. Because much of the selling came after the European markets were closed, the I-fund got a favorable price, but will likely pay for it today.
The AGG (Bonds / F-fund) was up after the yield on the 10-year Treasury fell to 2.26% yesterday. That was near the lows of the day so I'm not sure why this chart has that spinning top formation, but if it's legit, it could be close to a turning point for bond prices - at least temporarily.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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Investors are clearly on edge as the trade war is getting serious enough that Wall Street is starting to price in the possibility that no deal will be made. It had been quite optimistic for most of 2019, but clearly that sentiment has changed.
The economic growth estimates are being reconsidered and as we see bond yields dropping again, we see the dreaded inverted yield curve between the 10-year and the 90-day bonds again. Is this a portend to a recession? Not necessarily, but it does tend to increase the possibility.
As you'll see in the charts down below the S&P 500 is again flirting with that key 2800 level, and it could be the make or break area. We're also seeing head and shoulders patterns all over the charts and they can be interesting formations because they can be bearish - or bullish, depending on the trend. We'll get into that down below.
The S&P 500 (C-fund) is back down testing that key 2800 level after Tuesday's decline. The head and shoulder pattern is getting more clear every day. The question is whether an H&S pattern is bearish or bullish. There will be more on that below.
The weekly chart also shows just how important that 2800 area has been. It can be a brick wall, as we've seen several times, but when it breaks, it really breaks.
The DWCPF (S-fund) rallied above the 200-day EMA in early trading yesterday, but that failed and it made its way back below it by the close, and made a slightly lower low compared to last week's lows. The head an shoulders pattern is clear here as well, and that 1350 area looks to be key.
A head and shoulders pattern is typically considered bearish and traders expect them to break down. Some head and shoulders test the neckline after the right shoulder has formed, and fails immediately like the first chart below. Other test the neckline, then get a bounce back toward the middle of the head - then they eventually break down, like the chart on the right.
Here's a great example of that head test using an old silver chart...
Then there's the fact that head and shoulders patterns can actually be considered continuation patterns - depending on the size. A three year large head and shoulders pattern is bearish, but one that is just a few weeks or months old can be a continuation pattern.
In a descending trending market, like the one on the left below, they are the most vulnerable and more likely to break down. In an ascending market a head and shoulders pattern can form, then bounce off the neckline and make a new high, thus the continuation pattern. I can show an example, but the chart below on the right is what I am describing.
The head and shoulders pattern on the S&P 500 is coming off a rising trend so it's not quite as bearish as it may appear - unless this is a major top, and the triple top we see on that weekly chart above does make it a candidate. Smalls caps can be considered to be in a downtrend since its head in the H&S pattern is still well below the prior highs from 2018.
The EFA (I-fund) had been looking a little better than the U.S. charts. Yesterday's decline was enough to fill last week's open gap and the top of that gap did hold as the low. But it is back below the 200-day EMA and in a bear flag and it's hard to get excited about it yet. Because much of the selling came after the European markets were closed, the I-fund got a favorable price, but will likely pay for it today.
The AGG (Bonds / F-fund) was up after the yield on the 10-year Treasury fell to 2.26% yesterday. That was near the lows of the day so I'm not sure why this chart has that spinning top formation, but if it's legit, it could be close to a turning point for bond prices - at least temporarily.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
