TSP Talk – 08/25/12

The stock market closed out a rough week strongly as the 100-point gain in the Dow on Friday recouped almost half of the week’s earlier losses. On the week the Dow still lost 117-points and we now have some interesting technical setups forming.

Here are the TSP fund returns for the week of August 20 through August 24.

The S&P 500 broke below the rising wedge pattern (red) last week, as we would expect a rising wedge to do, and the rally on Friday took the index back up to the bottom of that wedge, which could now act as resistance. The 20-day EMA gave the index some support so the test coming into next week will be, which will give – the wedge resistance or the support of the EMA? The resistance of the wedge is rising so there is room on the upside, but a break below a rising wedge is a bearish indication.

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

The weekly chart below will give us a longer-term view of the S&P 500. You can see that there is long-term resistance line just above, and the current double top is a formation that tends to trigger some selling before a breakout. You can see some previous double tops on the chart (blue lines) did produce at least pauses in the rally. Remember, each line represents one week’s worth of action on this chart.

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

The pattern above actually looks pretty good for the longer-term as that large cup & handle formation tends to break above that long-term resistance – eventually. But over the next couple of weeks the index has to deal with the short-term double tops that may cause it some problems.

The dollar had fallen sharply and the UUP (dollar ETF) actually fell below the 200-day EMA last week, but it quickly reversed on Friday and it closed back above it. This chart looks to be getting more long-term bearish 9for the dollar), but for the short-term we have seen 2 consecutive positive reversal days and there is a large open gap above that will try hard to get filled this coming week.

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

Since the trend over the last few years has been for the dollar to move in the opposite direction of stocks, this set up confirms what looks like a possible realistic scenario. That is, a short term rally in the dollar and more short-term weakness for stocks.

As I said the cup and handle formation on the S&P looks promising, but during this election year, which normally has a bullish bias, the market will likely react to the changes in the very close presidential election polls over the next couple of months. We’d hope the charts are telling us the story, but it in this case the news may be driving the charts. We’ll see.

Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.

Tom Crowley
Weekly Wrap-Ups Archive
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