Stocks sold off on Monday as the Dow shed 326-points and the broader indices lost between 2% to 3% on the day. Bonds rallied. [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 economic data has been coming in weaker than expected and the emerging market currency troubles are being blamed on the Fed's recent tightening... excuses, excuses. There are many blaming the recent hiccup in the economic data on the severe weather we've seen, and that might explain some of the reason why stocks have struggled, but I don't think that explains why bond yields are dropping so quickly. That is the sign of some possible real economic issues.
The S&P 500 (SPY) plummeted breaking below it's bearish flag and some key support.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As we talked about on Monday, the support lines (red) that crossed near 1770 looked pretty strong, and the S&P was actually in positive territory shortly after the market opened on Monday, but that support did not hold very long as it was cut like a hot knife through butter. There is a weaker level of support near 1730 (black), and then comes the 200-day EMA.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The PMO indicator is down below 0.0 and the last two times produced imminent lows, but that was 2013 and it doesn't look like 2014 is not going to be another 2013.
Even the weekly chart is showing some cracks and now that it is back within the wide rising parallel trading channel, there is a possibility that the the bottom of that channel could be tested again, and that's a long way down. It isn't something that would happen overnight - we'd hope, but that is a potential, eventual target.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow has already fallen to the 200-day EMA (and the 200-day Simple Moving Average). The prior two tests did hold. We're still in a bull market and this may have to be where the bulls make a stand.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The bear flag on the Nasdaq broke down in classic technical analysis fashion.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds surged on the panicky sell-off in stocks. The rising trends are strongly intact and we've had enough closes above the 200-day EMA to take this rally seriously.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The 10-year Treasury yield fell below 2.6% and that is what has me most concerned. A pullback in stocks is one thing, but when yields drop this sharply, there may be some underlying economic concerns. As I have said before, bond traders are more savvy than stock traders and they were trying to tell us something all year.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Look for a snap-back rally at some point this week, if not today. The question will be, is this another buying opportunity, or is it time to start selling the rallies? It's no longer 2013, and the knee-jerk reaction buy the dips that worked then may not work this year.
Administrative Note: RevShark is offering a free trial to TSP Timing this week. No payment information is needed. You just need to create a login to the Premium Service area, if you don't already have one. Here's more information.
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.
