Stocks opened in positive territory yesterday, but the gains waned and accelerated to the downside after the Fed's policy statement. The Dow lost 62-points, small caps lost 1%, and the I-fund was up but will likely pay the price when they post today's closing share prices.
[TABLE="width: 80%, align: center"]
[TR]
[TD="width: 300"]
[TD="align: center"] Daily TSP Funds Return[TABLE="width: 165"]
[TR]
[TD="align: right"] G-Fund:[/TD]
[TD="align: right"] +0.0056%[/TD]
[/TR]
[TR]
[TD="align: right"] F-fund:[/TD]
[TD="align: right"] -0.05%[/TD]
[/TR]
[TR]
[TD="align: right"] C-fund:[/TD]
[TD="align: right"] -0.48%[/TD]
[/TR]
[TR]
[TD="align: right"] S-fund:[/TD]
[TD="align: right"] -1.02%[/TD]
[/TR]
[TR]
[TD="align: right"] I-fund:[/TD]
[TD="align: right"] +0.28%[/TD]
[/TR]
[/TABLE]
[TABLE="width: 69%, align: center"]
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
You would think that because the Fed said nothing about taper and that they are going to continue their bond buying, that stocks would have rallied, but the Fed seemed a little concerned with economic growth. The stock market has been rallying on weak economic data because of that cheap easy money that the Fed has provided, but for some reason investors shied away from this one. Perhaps it was just a short emotional reaction that will be reversed in the coming days?
The S&P 500 (SPY) was making new highs in early trading but the Fed fueled sell-off created a negative outside reversal day. That means the day's high was higher than the previous day's high, and the low was lower than the previous day's low, and it closed below the prior day's low. This is a short-term bearish formation but many charts, including the S&P 500, have some support close at hand created by the old rising resistance line. The problem comes if that support breaks.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The small caps had a rough day and the Russell 2000 actually closed its recently opened gap. We talked yesterday about the consolidation the small caps have been in and said we could see a breakout or, as we saw in early October, a rollover. There is some fairly strong support here at the bottom of the now closed gap and the old resistance line. Should this support break, then there is some room to fall.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
With the Fed showing concern for the economy, oil lost ground again and it is now testing some support that, if broken, could see it testing the $85 a barrel area, although the head and shoulders breakdown we are seeing would give an initial downside target closer to $91. Lower oil prices means lower gas prices and that's usually a good sign for the consumer. That is as long as the economy isn't slowing down as the price of oil may be indicating.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bond yields bounced around after the Fed announcement and in the end they closed higher producing positive outside reversal days on both the 10 and 30 year Treasury Notes.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
If yields start to move higher, bond prices and the F-fund would go down. The trend is still down for yields, but these positive outside reversal days can act as bottoms so we'll have to see if there is any kind of a trend change developing.
Just a reminder that the October jobs report, which was originally scheduled for November 1st, will be delayed until next Friday - November 8.
In today's TSP Talk Plus report we go over a few more charts including Rydex bull / bear fund comparisons and what percentage of indicators are at extreme readings. 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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