Stocks fell sharply on Friday after disappointing earnings from Amazon and Ford, but the real concern seems to be the escalating situation with Russia and the Ukraine, which saw money move into safe havens like bonds and gold. The Dow lost 140-points on the day and the S&P 500 and small caps lost enough to push them into negative territory for the week.
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The I-fund held up better than the U.S. funds, but there may be some payback today.
The situation between Russia, the Ukraine, and the U.S. has an emotional component to it as investors tend to do their selling on Fridays just in case something ignites over the weekend. If nothing serious develops we could see a relief rally early this week, and we know that Tuesdays have a long winning streak and have done very well in 2014.
The SPY (S&P 500 / C-fund) is trading above the 20 and 50-day EMAs and this chart starts in the bottom left hand corner and is still ending near the top right. Those are the qualities of a bull market. That 184 level on this chart is key right now as it will not only fill an open gap if filled, it will also test that red support line which has been a source of support and resistance depending on which side of that line the SPY is. Right now we have a possible lower low and a potential new downtrend on this chart (blue). That's "possible" and "potential." It's not official.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Unfortunately for a couple of the leaders, the downtrend is official and the Nasdaq has pulled backed from the resistance of the 50-day EMA, creating yet another lower high. This chart is concerning, particularly since we are about to enter the weaker part of the year, particularly during mid-term election years.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Same for the S-fund, and this is why if you want to be in stocks you may want to opt for using the C-fund for at least some of your allocation since the S&P 500 chart is not in as bad of shape as this Wilshire 4500 small cap chart.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If you are a believer in this market, however, we know the small caps can explode higher when it does rally, and there is some longer-term support below that could be the catalyst. If that fails, however, the S-fund may not be the place to be.
One of the most important indexes for investors is the Dow Transportation Index, which is very sensitive to economic data. This chart was at an all-time high just two short days ago, and now it is flirting with create a second straight failed breakout after it could not hold the 136 level earlier this month.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
It lost 1.7% on Friday but notice how light the volume was? Not a lot of panic there. It seems to be at a make or break level and the bulls may try to make a stand here at the 20-day EMA and what may be the support line of a cup and handle formation (orange) breakout.
The 20+ year bond ETF TLT, made a new short-term high on Friday, but it may have produced a negative reversal day as it closed well off the high creating a small kangaroo tail. That reversal came right at the intermediate-term resistance line.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The 30-year bond yield made a new low on Friday and the 10-year is about to test the 200-day EMA once again. Can it continue to act as support?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The situation with Russia is keeping the yields at these low levels, keeping bonds prices from falling, and stock prices from rising. But any kind of resolution or clarity would likely reverse all of them all.
Read more in today's TSP Talk Plus Report. We post more charts and indicators, plus discuss the Sentiment Survey Results and its 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 TSP Talk Market Commentary
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.
