TSP Talk – Mixed picture

Stocks continued their volatile ways as we saw several big moves again this past week. The action on Tuesday, which included a big turnaround on high volume, is the type of move you might see at a market bottom, but the chart formations are still looking bearish.

After a weak start on Monday and into Tuesday, October finished its first week with some gains in the TSP stock funds. The C-fund gained 2.21% on the week, the S-fund added 1.98%, the I-fund was up 2.30%, while the F-fund (bonds) lost 0.62%, and the G-fund was up 0.03%.

The chart below of the S&P 500 looks chaotic but there is a lot of information there. We have talked about the head and shoulders patterns (in circles), and we actually see two separate H&S patterns now. They are bearish patterns that tend to break down.

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

We also had the break down of the bear flag (red), which we have been watching for weeks, and now that it has broken below the flag, it is likely to act as resistance on any rally, and we are seeing it testing those levels right now.

I think there is a “possibility” that Tuesday’s test of the lows on high volume, was a successful test that could turn out to be the bear market low. The action is reminiscent of prior market bottoms. A third consecutive 2.5% loss was forming on Tuesday and it turned out to be a good opportunity to make some money in stocks for a short-term play, and the S&P did rally over 8% from Tuesday’s low to Friday’s high.

Unfortunately, that is typical bear market rally behavior. The way the chart is playing out, there are several obstacles in the way of the S&P 500 and the bearish formations would indicate a potential move down to the 1020 area, which is the technical target level for the bear flag.

We are in a bear market right now, and we define a bear market as any time the 50-day EMA is below the 200-day EMA – and the crossover occurred in August. When in a bear market we should expect a bearish result. That is the way I will approach this. We have both positive and negative signs out there but while in a bear market, I am preparing for the negative and will adjust if anything changes.

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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