Despite Monday's positive reversal day, stocks resumed their downside on Tuesday and the decline was significant as the Dow, down 473-points, had its worst one-day since the Apple Warning sell-off on January 3. The good news may be that there was a 200-point rally off the late afternoon lows. The Nasdaq, Transports, and small caps were all down about 2% on the day with many indices stabilizing at some support area that could be meaningful, but make or break levels.
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The prospect of 25% tariffs on Friday will adjust earnings multiples for many companies, and that's the concern here, but something that may get our attention was that those small caps were also down 2% after brushing off the tariff news on Monday. Small caps aren't as impacted by the tariffs as large companies so the selling was broad making yesterday's selling a full market adjustment.
Technically we did see some support get hit and hold but this chart may be telling us something more meaningful. This the equal weight S&P 500 index, meaning the big stocks like Apple, Amazon, and Facebook, and other FAANG stocks, don't have more of a influence on it like they do on the S&P 500 index. The point is, look what this chart has done. It's below a level that has failed three times now. That means most stocks are about where they were about 16 months ago.
Perhaps the 50-day EMA will hold here like it did several times over the last 16 months, but selling stocks near that 4400 - 4350 area worked twice now. Is that the case again or will the 3rd time be the harm?
The S&P 500 (C-fund) lost 1.65% yesterday but closed quite a bit off the lows after hitting a fairly strong support level where the 50-day EMA is meeting that March peak. On the other hand, we've seen two rising support levels taken out already so it has a couple of strikes against it. A strike three may have it testing the 200-day EMA next so it's running out of chances.
The DWCPF (S-fund) gave up all of Fridays gains - again - after that strong positive reversal on Monday. It broke below a rising wedge formation but it is still a day off its recent highs, although this index is still well off its 2018 highs.
The EFA (I-fund) broke down on Monday from its rising channel and yesterday fell through its 50-day EMA. Again, this may be a buying opportunity, but when you get these red flag breakdowns, it's a sign that things can get rocky.
Surprisingly, the dollar has barely moved in the last two days so commodity prices were moving on their own. Oil lost 1.4% yesterday and has been in a pullback for a couple of weeks now and, as you can see, the 50 and 200-day EMA are being tested and holding so far, but the rising support line breakdown (red line) is a strike one here.
The price of copper fell through the 200-day EMA last week and has since held up but hasn't been able to recapture it yet. It looks more like a bear flag that could break down further. Copper is a good barometer for economic conditions.
The AGG (Bonds / F-fund) was up again but closed off the highs when stocks rallied late. For the first time we may have seen a safety play as gold and bonds were up, but the yield on the 10-year Treasury is still trending lower so it's more than just that.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the 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 www.tsptalk.com/comments.php
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.
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The prospect of 25% tariffs on Friday will adjust earnings multiples for many companies, and that's the concern here, but something that may get our attention was that those small caps were also down 2% after brushing off the tariff news on Monday. Small caps aren't as impacted by the tariffs as large companies so the selling was broad making yesterday's selling a full market adjustment.
Technically we did see some support get hit and hold but this chart may be telling us something more meaningful. This the equal weight S&P 500 index, meaning the big stocks like Apple, Amazon, and Facebook, and other FAANG stocks, don't have more of a influence on it like they do on the S&P 500 index. The point is, look what this chart has done. It's below a level that has failed three times now. That means most stocks are about where they were about 16 months ago.
Perhaps the 50-day EMA will hold here like it did several times over the last 16 months, but selling stocks near that 4400 - 4350 area worked twice now. Is that the case again or will the 3rd time be the harm?
The S&P 500 (C-fund) lost 1.65% yesterday but closed quite a bit off the lows after hitting a fairly strong support level where the 50-day EMA is meeting that March peak. On the other hand, we've seen two rising support levels taken out already so it has a couple of strikes against it. A strike three may have it testing the 200-day EMA next so it's running out of chances.
The DWCPF (S-fund) gave up all of Fridays gains - again - after that strong positive reversal on Monday. It broke below a rising wedge formation but it is still a day off its recent highs, although this index is still well off its 2018 highs.
The EFA (I-fund) broke down on Monday from its rising channel and yesterday fell through its 50-day EMA. Again, this may be a buying opportunity, but when you get these red flag breakdowns, it's a sign that things can get rocky.
Surprisingly, the dollar has barely moved in the last two days so commodity prices were moving on their own. Oil lost 1.4% yesterday and has been in a pullback for a couple of weeks now and, as you can see, the 50 and 200-day EMA are being tested and holding so far, but the rising support line breakdown (red line) is a strike one here.
The price of copper fell through the 200-day EMA last week and has since held up but hasn't been able to recapture it yet. It looks more like a bear flag that could break down further. Copper is a good barometer for economic conditions.
The AGG (Bonds / F-fund) was up again but closed off the highs when stocks rallied late. For the first time we may have seen a safety play as gold and bonds were up, but the yield on the 10-year Treasury is still trending lower so it's more than just that.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the 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 www.tsptalk.com/comments.php
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.
