If you like roller-coasters, you probably loved the action last week. We saw 4 out of 5 trading days with at least a 90-point move in the Dow. In January there were 10 days where the Dow moved 100-points or more, while in 2013 there was just one so, unfortunately for the bulls, 2014 may not be another 2013.
Here are the weekly, monthly, and annual TSP fund returns through Friday, January 31…
The S&P 500 (SPY) is at a point where in 2013, we saw pullbacks turn into bottoms and another leg higher for the bull market. We have some evidence that sentiment and the indicators are extreme enough to produce a rally from here, so I assume this coming week will be the first major test in 2014.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The S&P 500 is below the 50-day EMA, and that is a warning sign, but again, in 2013 it never turned into a problem so the question is, will 2014 be another 2013?
The Nasdaq managed to close above the 50-day EMA on Friday, but it is below the main short-term rising trading channel (blue), and there’s no denying that it is in the middle of an ugly bear flag – which usually break down. In 2013 we saw some small bear flags that actually broke to the upside. You can see the one in December initially broke down, but reversed quickly and started a new push to a 52-week high.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
We have been following this chart from mcoscillator.com since mid-December, and I have been filling in the action of the Dow as it has progressed, and you can see that this “3 peaks and a dome” formation, similar to the 1929 market, is still playing out. At first it was a little entertainment and something to wonder about, but now it is getting a little concerning.
Source www.mcoscillator.com, analysis by TSP Talk
While the stock market was peaking at the end of December, and retesting the highs just a couple of weeks ago, the bond market (F-fund) may have been trying to warn us of the possible dangers for stocks. You can see that they have been moving steadily higher (while yields have been dropping), and this is a strong trend that is now breaking through the 200-day EMA.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
That’s not easy to do in a bear market – where bonds spent most of 2013 – so this trend and the 200-day EMA may be the tell for stocks. As long as bonds are moving higher within this trend, stocks may be in a little trouble.
Good luck, thanks for reading, and have a great holiday weekend! We will be back here next week with another TSP Wrap Up. You can read our daily market commentary at http://www.tsptalk.com/comments.html.
Tom Crowley
www.tsptalk.com
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