Stocks opened sharply lower again on Thursday with the Dow down nearly 200-points at the morning lows. The indices bounced back but despite several attempts, the Dow, S&P 500, and Nasdaq couldn't quite push into positive territory with any authority. The Dow closed with a loss of 24.50. Small caps were a different story as they posted another gain.
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The I-fund is lagging and bonds were down sharply.
Action like we have been seeing this week has produced market bottoms in the past, but there is always a chance of a retest of the lows, even if the bottom is in. Hopefully the question is just a matter of whether we see a "V" bottom, or a "W" double bottom, but that may be too optimistic.
The charts have had damage done and while the S&P 500 is not in a bear market, the small cap and the I-fund charts are displaying bear market characteristics. In a bull market you'd expect a bullish outcome, but with the current mixed signals, it's not as clear how this will play out.
TheSPY (S&P 500 / C-fund) ended the day basically even. Technically this S&P 500 ETF lost 0.09%, but the S&P 500 Index gained 0.01%, so lets say it was flat. I was hoping for some upside follow-through after Wednesday's big reversal day, instead the indices were nearly testing the lows again but closed much better than they opened.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow also may have successfully tested the low after being down for 6 straight days and 12 of the last 14 days. It's due for a rebound but it's below the 200-day EMA and technically in much worse shape than it was just five days ago.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) followed-through on Wednesday's reversal, which is what we expected the major indices to do, but they have not performed as well this week. One theory is that the economic slowdown in Europe won't impact smaller U.S. companies as much as it will the larger corporations.
Chart provided courtesy of www.stockcharts.comm, analysis by TSP Talk
If that holds true, perhaps we will continue to see money flow into the Russell 2000 over the S&P 500, particularly since it was hit much harder during this correction.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The yield on the 10-year treasury, which fell to 1.87% on Wednesday, has moved back over 2.1% to 2.15%. That may have been a capitulation ("I give up") low for yields. It certainly felt like it.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
A low in yields could mean a top in bonds (AGG), but we know investors will move to bonds if stocks resume their downside slide. With its +6.32% gain, the F-fund has quickly become the top TSP fund for 2014.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! Have a great weekend!
Tom Crowley
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