Investors became more and more concerned as the day went on and the prospects of a debt ceiling deal became less and less promising. The Dow lost 133-points, but Tuesday's share prices included both Monday and Tuesday's action so they did not suffer as much as Tuesday's indices might have suggested.
[TABLE="width: 80%, align: center"]
[TR]
[TD="width: 310"]
[TD="align: center"] Daily TSP Funds Return[TABLE="width: 163"]
[TR]
[TD="align: right"] G-Fund:[/TD]
[TD="align: right"] +0.0253%[/TD]
[/TR]
[TR]
[TD="align: right"] F-fund:[/TD]
[TD="align: right"] -0.12%[/TD]
[/TR]
[TR]
[TD="align: right"] C-fund:[/TD]
[TD="align: right"] -0.30%[/TD]
[/TR]
[TR]
[TD="align: right"] S-fund:[/TD]
[TD="align: right"] -0.36%[/TD]
[/TR]
[TR]
[TD="align: right"] I-fund:[/TD]
[TD="align: right"] +0.45%[/TD]
[/TR]
[/TABLE]
[TABLE="width: 69%, align: center"]
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
Since the bulk of the day's losses yesterday came later in the day, the I-fund may be paying some of those gains back in today's prices.
There was no real damage done to the S&P 500 (SPY) chart as we still saw a slightly higher high and a higher low compared to Monday's bar. After a 3 to 4 day reversal and sharp spike higher, we may have been due for a little pullback anyway, but of course it's the reason for the decline that concerns us. The debt ceiling deadline is Thursday night so we are now really pushing the envelope.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The question is, as well as stocks have been holding up considering the circumstances, what are they capable of doing if the debt ceiling deadline is reached without a deal? The country does not go straight into default as the clock strikes midnight Thursday night, but as payments come due, someone will have to determine what gets paid and what doesn't. I've read that October 31 and November 1 are when some big bills come due and that could be when we get close to running out of cash. Now, is it possible that the folks in Washington will let this go on that long?
As I have been saying, the charts look quite solid so that is not the issue. It's difficult to analyze the charts when the market is currently driven by the headlines of two sides that cannot agree on whether it is day or night but again the recent strength could be telling us something.
Let's take a quick look at the charts since speculating on what will happen in congress is incalculable at this point.
The small caps backed off from its recent push into new high territory, but it's just a stone's throw away from recapturing those highs. The gap is quite apparent on this chart, as well as almost every major stock index chart.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transportation Index held up well most of the day and didn't move into negative territory until late in the day yesterday. The minor 0.2% loss led the major indices but the late decline may have created a negative reversal day.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds have been sliding steadily since early October as the debt ceiling deadline approaches. The PMO indicator is very close to crossing below its 10 day EMA which would be a bearish sign, but there is rising support just below that may help.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As I mentioned before, if the debt ceiling deadline hits and we get closer to a potential default, yields will likely rise sharply and bond prices (and the F-fund) will fall.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If a deal is made, bonds should stabilize but a debt ceiling increase without any spending cuts could also keep the bond price trend down, and the bond yield trend up. With a deal, or even without, Standard & Poor's and Fitch's rating agencies are likely to consider dropping our credit ratings - more likely if the debt ceiling is not raised - and that would likely cause all hell to break loose so there's a lot on the line here.
In today's TSP Talk Plus report we will look at the overbought / oversold indicators and take a look at what the price of oil might be telling us.
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 TSP Talk Market Commentary
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