Stocks opened lower on Friday and the downside pressure was relentless all day. A late surge lower pushed the Dow down to a 316-points loss by the close. The long awaited pullback is upon us and the question is what will the magnitude of this one be?
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The I-fund was the biggest loser on Friday as the German DAX, French CAC, and London FTSE all lost between 2.5% and nearly 3% on the day.
Bonds were up as investors looked for some safety.
The SPY (S&P 500 / C-fund) has finally relented and started to form the long-awaited right shoulder of the inverted head and shoulders pattern that we have been waiting for. You never know how deep a right shoulder will be but if the inverted H&S acts like an inverted H&S typically does, once the right shoulder hits bottom we should see an attempt to move back to the neckline and then a possible breakout. The right shoulder took longer to start than we thought, so it's possible it could take longer to form that we might think.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) is in the same situation with the more traditional horizontal neckline for its inverted H&S.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The market leader Dow Transportation Index is trying hard to hold onto that 50-day EMA, testing it for 4 consecutive days. The price of oil falling should help the bottom line for the Transports, but the problem is that demand for oil is dropping and that is potentially due to a global economic slowdown. The Transports are very economically sensitive and we usually see the problems develop here first.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Here is what has been happening to oil this year, and it is down under $57 a barrel in overnight trading as I write this Sunday night.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) was hit hard on Friday and the technical picture continues to deteriorate.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Like the London FTSE and the French CAC, the German DAX lost nearly 3% on Friday, which put a lot of pressure on the I-fund. The economic picture across the pond remains tenuous.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-fund) broke to the upside of its narrowing apex and we just want to be on the lookout for a "fake out" that isn't uncommon on the pennant breakouts. 110.56 is a new closing high for the AGG.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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