The index futures turned sharply negative in pre-hours trading on Tuesday, and that translated in a very weak open and a stiff sell off in stocks. There was a strong attempt at a recovery mid-day but the Dow still closed down 291-points, which was actually 100-point off the lows. Weak earnings and a poor Durable Goods report were blamed.
On the bright side, after the close yesterday, strong earnings reports from Apple and Yahoo sent the futures sharply higher so we'll have to see if this will be enough to halt the downside momentum.
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The I-fund was helped by a decline in the dollar and a big rally in Japan early Tuesday, while the S-fund was spared the punishment that the C-fund endured, losing less than half - percentage-wise. The F-fund was up slightly.
Today is the FOMC rate decision day and the policy statement is usually announced around 2 PM ET. The Fed is trying to determine whether falling oil prices, a slowdown in European growth, and the recent Greek elections will threaten the U.S. recovery as it considers raising interest rates.
The SPY (S&P 500 / C-fund) has failed for a third straight day to make a higher high. Technically, yesterday's action was not disastrous, but it did close below the 20-day EMA and just below the 50-day EMA, so the cracks are building. Also, until we see a move above the December highs, the possibility of a rounded top remains.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Wilshire 4500 (S-fund) broke out above key resistance on Monday, fell below it early on Tuesday, but managed to close above it again yesterday. The small caps have been outperforming but it has not yet made the move it needs to call this an official breakout.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Nasdaq 100 (QQQ) gapped lower and was hit quite hard as it lost 2.6% on the day. That's the bad news. The good news is Apple and Yahoo should help it out at least somewhat today. Two stocks can't always carry an index but these two are two of the bigger names and the Nasdaq futures (+25.00) are indicating a decent open for the QQQ as I write this Tuesday evening. We know gaps tend to get filled sooner rather than later so that's what I would expect, but watch the top of that gap (about 103.5) for possible resistance.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index continues to show us a possible bull flag, which would be bullish, or perhaps it is a new lower high, which would be bearish. The 50-day EMA was tested and held on Tuesday.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) was up on Tuesday, with much of that coming from a big day in Japan (+1.72%) and finally a decline in the dollar. Resistance is all around this bear market chart but it has recently made a 7-week high. If the dollar is peaking, this could breakout but until we see that, we're expecting the bear market to continue.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (Bonds / F-fund) looks to be breaking to the upside of a bull flag, but it closed well off the highs and it is now trying to use the top of the flag as support.
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
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