Riding the Wedge
Historically, early August hasn’t been the best week to be in the stock market but this year stocks followed up on July’s big gains with another nice week. The weak jobs report on Friday spooked investors early, but by the close buyers stepped in again and the indices closed with just modest losses.
For the week, the TSP funds all finished higher as the C-fund gained 1.87%, the S-fund added 1.04%, and the I-fund jumped 3.31%. Bonds (F-fund) rallied 0.28% and the G-fund added 0.04%.
The S&P 500 continues to ride along what we call a rising, or ascending wedge (red trendlines). The last two Friday’s have seen sell-offs that tested the lower end of the wedge, but both tests held and the wedge moves on. You can see that the wedge is converging, which is what wedges do, and the index will eventually break to the up or down side.
Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk
There’s couple of things to look for in wedge patterns. Rising wedges tend to break to the downside, while falling wedges tend to break to the upside. Not always, but there is a strong tendency.
Another tendency is that the initial break (up or down) can be a false breakout. That is you may see a break in the wedge on the up or down side, but within a day or two it moves back into the wedge, and eventually breaks the other way. The market always likes to keep us on our toes.
There are two other notable observations on the chart above. The first is that there is more resistance above at the June high (~1131), and second the MACD Histogram indicator continues to give a negative divergence. The MACD has been sloping downward since its peak in early July, while the S&P 500 has trended upward. This divergence is not a deal breaker for the S&P but it is something technicians are watching as negative divergences do tend to precede market turns.
The momentum remains on up side and fighting this market may not be the best idea. But there are signs that things could turn, and keeping an eye on that wedge over the next week or so may give us our best clue.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
Historically, early August hasn’t been the best week to be in the stock market but this year stocks followed up on July’s big gains with another nice week. The weak jobs report on Friday spooked investors early, but by the close buyers stepped in again and the indices closed with just modest losses.
For the week, the TSP funds all finished higher as the C-fund gained 1.87%, the S-fund added 1.04%, and the I-fund jumped 3.31%. Bonds (F-fund) rallied 0.28% and the G-fund added 0.04%.
The S&P 500 continues to ride along what we call a rising, or ascending wedge (red trendlines). The last two Friday’s have seen sell-offs that tested the lower end of the wedge, but both tests held and the wedge moves on. You can see that the wedge is converging, which is what wedges do, and the index will eventually break to the up or down side.
Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk
There’s couple of things to look for in wedge patterns. Rising wedges tend to break to the downside, while falling wedges tend to break to the upside. Not always, but there is a strong tendency.
Another tendency is that the initial break (up or down) can be a false breakout. That is you may see a break in the wedge on the up or down side, but within a day or two it moves back into the wedge, and eventually breaks the other way. The market always likes to keep us on our toes.
There are two other notable observations on the chart above. The first is that there is more resistance above at the June high (~1131), and second the MACD Histogram indicator continues to give a negative divergence. The MACD has been sloping downward since its peak in early July, while the S&P 500 has trended upward. This divergence is not a deal breaker for the S&P but it is something technicians are watching as negative divergences do tend to precede market turns.
The momentum remains on up side and fighting this market may not be the best idea. But there are signs that things could turn, and keeping an eye on that wedge over the next week or so may give us our best clue.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
