Stocks were mixed on Friday but there was certainly tension in the air leading into weekend that would see a referendum on whether the annexation of part of the Ukraine by Russia would pass. The Dow lost 43-points while the small caps put together a fairly good day.
[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 Dow was down all 5 trading days last week and the last time that happened was back in May 2012 when the Dow was down everyday from May 14 through May 18. One day later the Dow was up 1.09%. One week later it was up 0.69%, and one month later it was up 3.01%.
The outcome to the referendum was all but certain, but the question was whether the market had already priced in the consequences of it passing. It's possible that we could see a "buy the news" reaction after the market "sold the rumor" last week. We are starting to see some cracks in the charts that have me concerned, but many indicators are hitting extremes that could negate this.
The SPY (S&P 500 / C-Fund) filled its open gap last week near 185.50. If we had an inverted head and shoulders pattern breakout, and that is what it looks like, the pullback has come back down to test the neckline, and that is something technical analysis would have us believe could hold as support.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Do you remember this inverse head and shoulders example I have posted before? I think a good case can be made for the recent action to qualify. If the neckline cannot hold, then we could have a problem, and the PMO indicator above may be telling us that it may not hold.
The small caps led the way on Friday, and that can be a good sign. The major indices like the Dow and S&P 500 made a lower low on Friday (compared to Thursday) but the small caps created an inside day where the low was higher than the prior day, and the high was lower than the prior day. That's not too telling, but the higher low shows some positive action.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transportation Index closed slightly lower on Friday but also held at Thursday's low. There is an open gap below and a rising support line, and that would seem a logical spot for a downside target should the pullback continue.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds have been quite bullish recently and this cup and handle on the IEF bond fund is a formation that has a tendency to break to the upside. The problem with that is, if it does, that would not a be good sign for the stock market.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
So we have some concerning cracks in the charts but some indicators that may be show that relief may not be far off. On Tuesday and Wednesday of this week we get the first FOMC meeting with Janet Yellen as the Fed Chairman so we'll have to hear what she has to say. Her reputation is that she is very open to assisting the market with easy money, so she may say something that helps stabilize this pullback. Otherwise, if she can't make investors feel better, perhaps we're in for a real correction?
Happy St. Patrick's Day!
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.
