The market made a mockery of our Turnaround Tuesday by taking away those gains on Wednesday, and then falling into the abyss. Well, that's an exaggeration but that could be what it feels like if you are in stocks right now. The Dow lost 365-points with 2% to over to 3% losses in many indices.
Oil was trading significantly higher in early trading but a stronger than expected inventory report sent it down again, and that's about the time stocks started to retreat. Oil actually ended the day in positive territory, but well off the pre-report highs.
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In Asia, Japan gained nearly 3% on Wednesday, but China's Shanghai resumed its sell-off losing another 2.4%.
I looked toward the average volume after Tuesday's reversal day as a concern, but tried to dismiss that by saying we had a reversal in late September / early October on just average volume. But over the years, and I'm talking many years, market lows tend to occur when the selling is panicky and the volume is extreme. Margin calls, forced selling, and that "get me out at any cost" feeling wasn't there on Tuesday, and unfortunately, we didn't really see that too much on Wednesday either.
As I have said many times over the years during these corrections, a temporary low is probably close at hand time-wise, but you never know how much damage can be done in that short timeframe. And, you never know how quickly a rally will be sold again, but that's where the panicky high volume sell-off / reversal helps. That's usually a good sign that the worst it over.
The SPY (S&P 500 / C-Fund) created a negative outside reversal day as the relief rally ran out of steam almost as quickly as it started. The 50-day EMA is now crossing below the 200-day EMA. Technically, this is a bearish signal for the intermediate-term, but it can often occur just before an oversold rally. I don't know if we can consider a day and a half an oversold rally. That was more of a dead-cat bounce. Volume remains steady. It's not low compared to the holiday and fall numbers, but so far no panic selling like we saw at the end of August. That could be close at hand, however... at least the bulls should hope it is. An average volume slide could last a long time so the sooner the panic begins, the sooner we could see a low.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (small caps / S-Fund) fell over 3% yesterday and those volatile small caps can make you pay the price when you play aggressively. They are normally fun and games in a bull market, but can be costly in a bear market, and they have been in a bear market for months now.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
This long-term weekly chart of the Russell 2000 shows some major breakdowns in the small caps. The long-term rising support line has now been broken, as was the 200-week EMA, and there is a 2+ year horizontal support line that was broken as well. The horizontal one broke briefly in 2014, but it was able to recapture that support rather quickly. There is a good chance that the Russell could attempt to test the old double top highs from 2007 and 2011. If this bear market plays out, that is where I'd expect it to end up - below 900.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index fell through the descending support line and seems so oversold. It is now trading 12% below the 50-day EA and 17% below the 200-day EMA. That's extreme.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) also posted an outside reversal day, and not the good kind. I've mentioned the many open gaps overhead and still believe they will get filled at some point, but how much lower it wants to go first is up for grabs. It's quite oversold.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-Fund) was up, as if often the case when stocks are falling as they are. This had the set up for a push to the lower end of the flag, which likely would have happened if stocks continued to rally, but investors had other ideas.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the 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 www.tsptalk.com/comments.php
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.
Oil was trading significantly higher in early trading but a stronger than expected inventory report sent it down again, and that's about the time stocks started to retreat. Oil actually ended the day in positive territory, but well off the pre-report highs.
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In Asia, Japan gained nearly 3% on Wednesday, but China's Shanghai resumed its sell-off losing another 2.4%.
I looked toward the average volume after Tuesday's reversal day as a concern, but tried to dismiss that by saying we had a reversal in late September / early October on just average volume. But over the years, and I'm talking many years, market lows tend to occur when the selling is panicky and the volume is extreme. Margin calls, forced selling, and that "get me out at any cost" feeling wasn't there on Tuesday, and unfortunately, we didn't really see that too much on Wednesday either.
As I have said many times over the years during these corrections, a temporary low is probably close at hand time-wise, but you never know how much damage can be done in that short timeframe. And, you never know how quickly a rally will be sold again, but that's where the panicky high volume sell-off / reversal helps. That's usually a good sign that the worst it over.
The SPY (S&P 500 / C-Fund) created a negative outside reversal day as the relief rally ran out of steam almost as quickly as it started. The 50-day EMA is now crossing below the 200-day EMA. Technically, this is a bearish signal for the intermediate-term, but it can often occur just before an oversold rally. I don't know if we can consider a day and a half an oversold rally. That was more of a dead-cat bounce. Volume remains steady. It's not low compared to the holiday and fall numbers, but so far no panic selling like we saw at the end of August. That could be close at hand, however... at least the bulls should hope it is. An average volume slide could last a long time so the sooner the panic begins, the sooner we could see a low.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (small caps / S-Fund) fell over 3% yesterday and those volatile small caps can make you pay the price when you play aggressively. They are normally fun and games in a bull market, but can be costly in a bear market, and they have been in a bear market for months now.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
This long-term weekly chart of the Russell 2000 shows some major breakdowns in the small caps. The long-term rising support line has now been broken, as was the 200-week EMA, and there is a 2+ year horizontal support line that was broken as well. The horizontal one broke briefly in 2014, but it was able to recapture that support rather quickly. There is a good chance that the Russell could attempt to test the old double top highs from 2007 and 2011. If this bear market plays out, that is where I'd expect it to end up - below 900.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index fell through the descending support line and seems so oversold. It is now trading 12% below the 50-day EA and 17% below the 200-day EMA. That's extreme.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) also posted an outside reversal day, and not the good kind. I've mentioned the many open gaps overhead and still believe they will get filled at some point, but how much lower it wants to go first is up for grabs. It's quite oversold.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-Fund) was up, as if often the case when stocks are falling as they are. This had the set up for a push to the lower end of the flag, which likely would have happened if stocks continued to rally, but investors had other ideas.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the 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 www.tsptalk.com/comments.php
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.
