Stock rallied strongly on Wednesday morning, but peaked and later fell apart in late afternoon trading. The damage wasn't bad, but the negative outside reversals could be setting up some additional short-term weakness. The Dow lost 89-points, but it seemed worse because of the huge reversal after being up nearly 100 earlier.
[TABLE="width: 79%, align: center"]
[TR]
[TD="width: 300"]
[TD="align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"] [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
The losses were modest in the TSP stock funds but the I-fund will have to pay the price today since U.S. stocks sold off late on Wednesday and the dollar rallied late as well. That's not a good combination for the I-Fund. The F-fund was down and the bond charts also produced negative outside reversal days making things interesting.
The reason for the negative reversals was possibly the new terror threat for flights coming into the U.S. from abroad, but we've also come a long way in a short amount of time while economic data has come in weaker than expected, and it just may be time for a pause. The SPY (S&P 500) hit the January highs and backed off as if hitting a brick wall. The open gap was filled last Friday and the highs are causing resistance. This looks like the recipe for at least a short-term pull back, but not necessarily anything too severe - yet.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This chart shows that new highs are often sold shortly after the breakout, but the S&P 500 has not made a new high yet. Only once (orange) in the four prior breakouts did the S&P not pull back below that new high before resuming the rally.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The February seasonality chart does have this strange one-day wallop on day #12, which was yesterday (Wednesday). I guess I could have mentioned it a couple days earlier, but with our IFT limits, acting on a one-day seasonal anomaly isn't normally very productive.
Chart provided courtesy of www.sentimentrader.com
The Transportation Index is giving me some concern. This market leader got pounded for a second straight day. It fell below the 50-day EMA again and it's looking like a break down. Perhaps it is looking to test the early February lows?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow has started pulling back and we have been watching that late November high for possible resistance, and as of now, that might be the case.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The reason that is a concern is because of the dreaded 1929 chart. While other major indices, like the S&P 500 and the Nasdaq, are near or making new highs, the Dow chart still looks a lot like the 1929 chart. The recent sharp rally did quiet a lot of the talk about this chart, but I'll bet any additional selling will put it back in the blogs and in places where you wouldn't normally see it. It's intriguing, if nothing else.
Chart provided courtesy of www.mcoscillator.com, analysis by TSP Talk
Bonds had an interesting day yesterday as they copied the stock market and posted a negative reversal day. The question this leads me to is, which negative reversal day is the real one? Perhaps they were both (stocks and bonds) victims of the rally in the dollar yesterday, but one of them (stocks or bonds) will likely rebound from here, while the other will pullback. Judging by the charts, I would say bonds have a better chance in the short-term of rebounding, but the indicators may be telling us the opposite. Interesting times.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Since yields move counter to bond prices, the yield charts show positive outside reversal days, but as mentioned above, yesterday's action may not be telling the story, and we'll need another day or so to see which way things break.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
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.
