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| Today's Commentary (Short Term Outlook) |
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Are stocks rallying
because of the weak dollar? Stocks took a little break yesterday as the Dow shed 50-points and the TSP stock funds were all down, with the S-fund lagging losing 1%, the C-fund slipping 0.6% and the I-fund down just slightly. Bonds rallied again with the F-fund picking up 0.25%. The S&P 500 continues to dance above and below the upper resistance line of the rising wedge. The selling yesterday caused no technical harm at all to the index, but this leg of the rally is now about 3-weeks old, and 3 to 4 weeks has been about as long as they have been lasting before a pullback.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk While stocks have been moving relentlessly higher since March, the dollar has been moving relentlessly lower. Rather than a rising wedge, we see a falling wedge, and we are getting closer and closer to the apex of both wedges.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk The wedges will eventually break, the question is to which side, upper or lower end?. It would not be difficult to assume that they will break in opposite directions. So, like the price of gold and oil, which keep going higher as the dollar drops, are stocks simply moving up because the dollar is dropping? Is the lower valuation of the dollar just making everything more expensive, including stocks? I'll let the economists argue that one, but it seems we should have our money somewhere other than in just cash (U.S. dollars) since everything that can be bought in dollars seems to be moving up while the dollar moves down (sorry for the redundancy). Unfortunately, our only choices in the TSP are stocks and bonds, but if the dollar does eventually rally I assume stocks along with gold, oil and other commodities will start to pull back as well. The problem is, do we want the dollar to continue to drop so that we can try to make money in our TSP accounts? Bonds are also going up in this environment as yields continue in their downtrend, but while yields are in a downtrend they seem to have found a little support from the previous resistance.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk They may just stay in that trading range for a while between the upper and lower trading channels above. I had almost completely abandoned the ARMS Index indicator over the last few years as we were seeing such extreme readings that it didn't seem to help at all.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk But I am seeing some stability coming back into it as the indicator has been staying between 0.75 and 1.50 since the March lows. I may have to incorporate it again. When we see a reading of 1.3 to 1.5, we may again be able to use it as a buy signal like the old days. Cool! That's all for today. Thanks for reading. We'll see you back here tomorrow! |