Stocks were hanging onto modest gains for most of the morning yesterday before things started to melt down. Some were pointing to the tragic shooting in Canada, but the charts were showing us where there could be some resistance, and that's about where they reversed. The Dow lost 153-points and small caps took the brunt of the selling.
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The I-fund may pay the price today since the losses in the U.S. markets came after the overseas markets had already closed. Bonds were also down, which is interesting.
The SPY (S&P 500 / C-fund) temporarily moved above the 50-day EMA before starting to pullback yesterday. It has been a good run since last week's low and seeing a little rest here is not a big surprise. It might be nice to see that open gap get filled, just to keep things tidy, and sometimes the bottom of those gaps can act as support. But, a lot of folks are expecting a retest of last week's lows, and that is also very possible. Whether the bottom of the gap acts as support or the lows get retested is a big unknown and whatever you choose could make a big difference in your annual return.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) is sitting underneath the 50 and 200-day EMAs. Not a particularly favorable position, but it has come a long way in just a few days and it may need a little refueling before breaking through as it may be overbought in the short-term.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Russell 2000 (small caps) is under those key EMAs as well, and there is an open gap below that was nearly filled during yesterday's decline. I always like to see gaps get filled quickly, otherwise you're always looking over your shoulder knowing it's there to be filled at some point. So far this little retracement of the recent gains has been manageable and healthy, but it can't get too much worse or it will be testing the lows again, and tests don't always pass.
Chart provided courtesy of www.stockcharts.comm, analysis by TSP Talk
The Dow Transportation Index had rallied strongly off of the lows and the 8500 area seems to be a little resistance. It could be the neckline of an inverted head and shoulder formation (H&S) in which case we could see a few more days of consolidation before we know which way it will break.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) saw some modest losses. This is a battle between weak economic data, and very oversold overseas markets due for some relief.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG was down slightly and that could actually be a positive sign for stocks. There was not a lot of panic in the bond market when stocks were falling yesterday. Yields tend to fall and bond prices rise when stock market investors are selling and looking to dump money somewhere else, but there weren't many signs of that yesterday.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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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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