Stocks were down sharply on Friday with the Dow shedding 272-points, which capped off yet another volatile and negative week on Wall Street. The disappointing jobs report, with just 173,000 being created in August, didn't help although we continue to see the unemployment rate drop. But the 5.1% rate is strengthening the case for higher interest rates, and the market doesn't like that.
The summer isn't over but unofficially, the summer trading is, as we head into post-Labor Day season. This week's trading can also be a little light in that vacations creep into the early part of the week while summer homes get closed and travel ends.
The index futures were up nicely Sunday night and Monday morning and so far held into Monday evening's futures trading open. There are some overhead gaps on the charts that a positive open on Monday morning might reach for.
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The I-fund lagged on Friday and also lagged for the week as the dollar has rallied strongly off of recent lows. The F-fund was up modesty as investors continue to shy away from stocks and opt for bonds.
The SPY (S&P 500 / C-fund) opened a new small gap (red) on Friday's negative opening, after filling two other gaps (blue) on Wednesday and Thursday. The overhead gap could get filled quickly if the positive futures hold into the open, but otherwise this chart does not look too bullish. A successful test of the lows would go a long way in putting a foundation low beneath the market. Of course a test does not have to hold, but if we don't test that low, investors would be looking over their shoulder over the next few weeks and months wondering if there will be a test, so we might as well hope we get it over with.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (S-Fund) has been lagging the large caps for months now and if that turns out to be a big bear flag, the downside target would be pretty ugly.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The market leading Dow Transportation Index also has a big bear flag on it and we know this chart has already been in a bear market for months and while in a bear market we should anticipate a bearish outcome.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The QQQ (Nasdaq 100) has been an interesting chart as it trades well above that August Monday morning mini-crash low, but it has struggled to recapture the 200-day EMA. There is a small open gap above the 200-day EMA near the 50-day EMA and that is a possible upside target, but that's a lot of resistance to deal with.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) has nearly tested its August lows already and continues to be the lagging fund in the TSP. As we mentioned above, the rebound in the dollar has been a catalyst for this weakness. The chart is battling the falling resistance line so any rebound this week may be vulnerable to more selling.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) has benefited from the weakness in stocks and otherwise I would be looking at bonds with a bearish eye. The Fed is on the brink of raising rates, and it's just a matter of time... unless the economy deteriorates in the interim.
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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