ta01 The 50-day EMA is now less than 2-points above the 200-day

Rally takes a break

Stocks opened sharply lower yesterday, but after a mid-day 190 point loss, we saw a modest rebound taking the indices well off of their lows. The Dow closed down 77-points.



For the TSP, the C-fund lost 0.95% yesterday, the S-fund fell 1.63%, the I-fund dropped 0.90%, and the F-fund (bonds) gained 0.26%.

The S&P 500, and a couple of other major indices, put in a flat top formation. If you start seeing two or more highs in the same area on a chart, you tend to see things get worse before getting better. A quick remedy for that, of course, is moving above the flat top. Unfortunately, that seems to be easier said than done. Watch today's highs.


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

The 50-day EMA is now less than 2-points above the 200-day EMA. A crossover of the two would "officially" put the market in bear market territory - at least in how I view certain indicators. The small caps of the Russell 2000 have already seen the "death cross" but that index has always been more volatile that most major indices.

The Nasdaq chart continues to look troubling with the obvious bear flag and rising wedge. Both are bearish formations.


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

Volume has also dried up on the rebound - another warning sign.

I am optimistic that we may have seen the lows of this correction, although I am equally pessimistic that we could see those lows get tested again before any rally resumes. The problem with that is it is 6% to 8% below where the S&P 500 closed yesterday. I think that kind of potential loss is worth trying to sidestep, if you can be nimble with your transfers and get back in should it happen.

Thanks for reading! We'll see you back here tomorrow.