The stock market saw its first shakeup of the new year last week with a 2% decline from Tuesdays’ high to Thursday’s low. Hardly anything to panic about, and we did get a snap back rally on Friday, but we did see some technical breakdowns in the charts after a couple of false breakouts.
Here are the TSP fund returns for the week of February 19 through February 22 – the first negative week for the stock funds in 2013.
The narrow ascending trading channel (red), which had been intact all year, finally broke down on Wednesday, along with a temporary break of the 20-day EMA (exponential moving average.) We knew that tight range couldn’t last forever but the longer-term rising trend is still very much intact.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The trouble is, despite the big rally on Friday, volatility looks to be picking up and there is more risk on the downside with the longer-term resistance just above current levels. Tuesdays’ breakout above the long-term resistance line (near 1525) may have been the sucker move.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
This chart from last year (2012) shows a similar pattern to start the year as 2013, and the first shakeup below the 20-day EMA actually triggered a strong rebound, much like Friday’s rally, but it also was the beginning of the end of the rally before we saw a peak and correction within weeks.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Barring any major catalyst, the strong upward momentum likely won’t stop on a dime, and the bulls will do their best to keep pushing things higher in the short-term, but there are signs that this leg of the bull market could be ready for a needed – healthy – pullback. If it becomes something more severe, we would hope to see that in the charts and indicators first.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
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