Stocks opened sharply lower on Monday but stabilized rather quickly and ended the day with some modest losses. Emotional gap opens on Monday mornings tend to get filled quickly, and it did try to fill the gap but didn't quite make it. The Dow ended the day down 108-points after being down about 200 at its lows.
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A lot of the damage done was in the European markets and that was why the I-fund suffered the biggest losses. Bonds were up but closed well off their highs.
Greece and the Fed are the top two concerns for investors this week and a two day FOMC meeting begins today so the fireworks should start around 2 PM ET tomorrow (Wednesday) with the policy statement, followed by a press conference with Janet Yellen at 2:30 PM.
This is a chart I posted last Thursday showing that the S&P 500's recent tendency to pull back after a gap up. If you look at the current chart below this one, you'll see we actually had one more modest day higher before a two-day pullback. The question now is, do we see the S&P rally like we saw the previous times?
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The SPY (S&P500 / C-fund) filled that open gap as it seems to always do, but it created another small gap near 209.50 that just barely missed getting filled on Monday. Another repeating pattern is the double test of the recent rising support line. As a default, I'd expect the repeating action to continue, but once the pattern ends we have to adjust our thinking. A break below that support line would be a change, and depending where it closes, would break the rising trading channel. So, I would expect the support to hold, but if it doesn't, it could mean the market environment is changing.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
This one year chart of the S&P 500 index shows the 100 and 150-day simple moving averages. Right now it is trading between the two and you can see why it is important for that 150-day MA to hold. There have been a couple of minor breaks, but once that support is taken out, there is more of a chance of a more severe sell-off like in October last year.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) closed well off the lows, and at the lows the Wilshire tested the rising support line again while breaking below the 50-day EMA. It held and bounced back above the 50-day EMA, so it was a temporary scare and so far the buyers are still willing to buy at support.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index lost about 0.5% yesterday and this is a bearish chart as the head and shoulder pattern is unfolding as if we're reading a textbook on technical analysis. As I have said for a month now, this could be the canary in the coal mine for stocks. This probably needs to improve greatly before we see new highs in the other major indices again.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE index / I-fund) opened sharply lower on Monday, filled its open gap, and rebounded. More textbook technical action. But it remains in a short-term down trend and the 50-day EMA and descending resistance line are the next obstacles in its way.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) opened sharply higher, but like stocks, reversed direction after the open and closed well off the highs. The 200-day EMA is the next test for the AGG but the descending resistance line currently near 109.50 - also where the 50-day EMA is currently, is a possibility on any rebound.
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 www.tsptalk.com/comments.php
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