TSP Talk Weekly Wrap Up

Bombing in Gaza. The Russians amassing troops at the Ukrainian border. U.S. Airstrikes in Iraq. The European economy rapidly slowing down. An Ebola outbreak. And U.S. stocks were up last week. It took a 186-points rally in the Dow on Friday to push the indices into positive territory, and that probably took many investors by surprise.

The indices were very oversold and due for a bounce, and that is the setup market timers look for, while investors were just glad to get some of their recent losses back.

Here are the weekly, monthly, and annual TSP fund returns for the week ending August 8:

The I-fund has been lagging because of the weakness in the European economy, plus the dollar has been moving almost straight up since early July, which puts pressure on international stock prices.

The SPY (S&P 500 / C-fund) was due for a rebound having been very oversold, but it has now closed below the 50-day EMA for 7 straight days. This is a change in character that should get your attention. The big rally on Friday may bring buyers back in early next week, but this chart may be breaking down and we’ll have to see if folks sell the rallies – something we haven’t seen in a long time.

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

The small caps of the Russell 2000 have created an ominous looking bear flag. Bear flags tend to break down, but we saw a couple of bear flags in the spring where one did break down temporarily but the other turned out to be the bottom before a strong rally.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

This chart of France’s CAC 40 illustrates the trouble we have seen in some European markets, but this one shows us a couple of things. One is that bear flags break down. The other is, once the CAC fell below the rising support (red line) and the 50-day EMA, it was a big warning sign. It fell below the 50-day EMA, then attempted to get back above it but was swatted back down.

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

That is the current concern in the U.S. indices. Many are breaking down below support and their 50-day EMA’s and often a rebound back to those levels is a selling opportunity. So watch those 50-day EMA’s if we rally early next week. If the indices stall there, I would consider getting a lot more defensive. If they close back above those levels, it will be a much more bullish sign.

The AGG (Bonds / F-fund) finally broke out above resistance (blue) late last week, but it also created a reversal topping pattern. I’ll be looking to see if the resistance line holds as support now that the AGG is on top of it. If it does hold, bonds may continue to rally and that would be a bad sign for the stock market. If this was a reversal top in bonds, look for stocks to rally next week.

Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk

Good luck and thanks for reading! 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. If you need some help deciding what to do with your account, perhaps one of our premium services can help.

Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
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