Stocks ended last week with a thud as the 176-point loss in the Dow on Thursday was followed by a sharp 318-point decline on Friday. Only the G and F-funds survived as the TSP stock funds saw stiff losses, sending all three into the red for the new year.
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A series of events has investors nervous including growth issues coming out of China, trouble in emerging markets including the Argentinean Peso dropping sharply in value, the Fed getting ready to taper QE, and Moody's downgrading insurance companies.
The S&P 500 (SPY) fell through the 20-day EMA on Thursday, and then through the 50-day EMA on Friday. There is some short-term support that was tested and held, but any losses today (Monday) would see that break support. There is a small open gap on the SPY near 184, and that will eventually get filled, but when and will there be more damage done first?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The annual chart shows that there is some room below before the bottom of the longer-term rising trading channel is tested. So far this is a manageable decline, but if we start seeing 1755 or lower on the S&P, then the 200-day EMA will likely be the next level of support to be tested.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transportation Index had an interesting week. On Thursday, when the Dow lost 176-points, the Transports closed the day in positive territory. But on Friday, the Transports lost 4% mainly because of an earnings miss by Kansas City Southern, which sent that stock down 15% and it accounted for 31% of the index's decline. It landed in a nice spot if you're looking for support, but it has to hold there.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Otherwise, the Dow Transportation Index has a lot of room on downside before testing the bottom of the long-term rising trading channel.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I suppose it is time again to talk about this 1929 chart comparison from mcoscillator.com. Clearly the stock market today is a different animal than it was in the early 20th century as measures have been put into place to stop precipitous declines, but it's the chart pattern called 3 Peaks and a Dome that we are looking at, and it is a bearish formation that, if played out, would produce a lot more downside for today's market. We have posted this as an interesting, somewhat entertaining development, but for those who are totally dismissing it, don't say we didn't warn you.
Chart source www.mcoscillator.com, analysis by TSP Talk
Today (Monday) is the 17th trading day in January. Including today, there are 5 trading days left in the month. This year, January only has 21 trading days, so where we stand on this chart depends on how you look at it, but historically, the end of January has a strong positive bias. Whether the current market environment will care about that remains to be seen, but it's something bullish to consider during this ugly action.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
Bonds continued to rally as investors opted for them over stocks as a safe haven. The trend this year has been up and so far the 200-day EMAs have not been an issue.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The yield on the 10-year Treasury has fallen to 2.735%, and through some longer-term support, and the 200-day EMA may be the next level tested. There have now been two separate failed attempts to break above the 3% level and you have to wonder if the bond market is telling us that the economy is not yet strong enough to see yields above 3%.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The chances of a snap-back rally in stocks either today are tomorrow are pretty good, but the question will be whether we see yet another "V" bottom, or if the rallies will be sold which would put us in an environment that we haven't seen in a while. Earnings are still coming in, but this week eyes will likely be more focused on emerging markets, currencies, and China.
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
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