The bear flag breakdown
Stocks experienced their worst week since 2008 as the ongoing debt issues plagued Europe, and here at home the Fed’s “Twist” plan of buying $400 billion in long term debt while selling an equal amount of shorter maturities, did not go over very well. They also added the word “significant” to their policy statement saying, “There are significant downside risks to the economic outlook.”
Regardless of what is being said and done, all we really care about is what the stock market is doing, and for weeks and months now, the charts have been telling us to play defense.
For the TSP funds, the C-fund lost 6.53% last week, the S-fund dropped 8.43%, the I-fund was down 6.79%, while the F-fund (bonds) gained 0.68%, and the G-fund was up 0.04%.
For the month the C-fund is down 6.65% in September, the S-fund has lost 9.19%, the I-fund is down 6.79%, the F-fund is up 1.12%, and the G-fund has added 0.12%.
In our last weekly report we were watching the 50-day EMA (exponential moving average) and we talked about how difficult it is for the S&P 500 to get back above it in a bear market. On queue, the S&P 500 pulled back from the 50-day EMA this past week, and moved back down to the lower end of the bear flag. In the process, a head and shoulders pattern was created (blue circles) and it all broke down on Thursday.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The S&P is now testing the August lows. The closing lows were in the 1120 area while the intraday low on August 9th was 1101.
I can try to do a lot of analysis here using sentiment, overbought / oversold indicators, etc., but we’re at one of those points where emotions are high and we are likely to see some irrational movements. My theory would be that we could see more negative action early this week, and it could get ugly depending on what comes out of Europe this weekend, but I also believe we could see a buyable bounce before the end of the week.
The safe thing to do is just wait it out until we see some improvement in the charts, but for the more aggressive investor / market timer, there could be an opportunity coming. If you do decide to take some chances, I would suggest being very nimble. We are in a bear market and we should expect bearish results, so if you can grab a profit in a trade, you might want to take it and run.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
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