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| Today's Commentary |
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A big test coming Stocks were mostly lower on Friday, although they did finish well off of their lows. The Dow lost 58-points on the day, but had been down over 120 earlier in the day. Perhaps that late positive momentum can carryover into today's trading, but with the S&P on the cusp of moving back into bear market territory, selling rallies may be the play again. We are at a point where things will either break down, or find support and rally. We'll take a look at several charts to see if we can find some clues. For the TSP, the C-fund fell 0.36% on Friday, the S-fund dipped 0.08%, while the I-fund lost 1.38%. The F-fund (bonds) dropped 0.16%. For more on the weekly and monthly returns and analysis of the breakdown of the rising wedge and flag patterns, please see our TSP Weekly Wrap-up. The S&P 500 is showing us several possibilities, with most of them negative, but the positive scenarios would kick in pretty quickly if we go that route. We have been talking about all of the head & shoulders patterns (H&S) we are seeing on the S&P 500 chart but looking at the most current H&S (in blue) it is testing the neckline now so we could see a rebound here now... or a breakdown. A breakdown of the H&S would likely result in a test of the neckline of the longer-term H&S pattern (thicker red line). After that, the next level of support would be where the July low meets the descending trendline off of the April high - about 1010.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The 50-day EMA is still hanging above the 200-day EMA but with the S&P trading below both EMA's it looks like a cross (50 below 200) is inevitable in the coming days. That would put the S&P back in a bear market "officially." Taking a look at few important charts, we can see that there is strong support below many of the major indices. It is likely that they will all end the same - either all will rebound from support, or support will break for all of them. The Dow Transports have been in a pretty consistent uptrend with a couple of temporary breaks. Here it is about to test the lower end of the long term trading range again. The 200-day EMA will help with support as well, but if the trend breaks, it could get ugly.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The Nasdaq is deep into the right shoulder of a head and shoulders pattern. You can see that the index is getting close to testing the neckline near 2100. As we have talked about many times, H&S patterns are bearish, but the neckline can act as support before breaking. If however, the neckline breaks, we are looking at a potential downside target of between 1800 and just under 1700.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The Housing index is testing a one year low near 90. I don't have a downside target on this index as it can be very volatile, but obviously a break of support would not be good.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk How about the financial sector? There is also a big head and shoulders pattern on the XLF (financial ETF). A break of the neckline could mean a move down to 10.0 or a loss of 25% or more from where it is now.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk There is a PMO sell signal on all of the charts. The NYSE overbought/oversold indicators is basically neutral (not oversold), which is interesting (in a bad way) considering the recent selling, but sentiment is getting more and more bearish, which could mean a temporary bounce is due. Bottom line, the bigger picture remains one of concern and the tests will be coming soon. Thanks for reading! We'll see you back here tomorrow. Tom Crowley |