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Big GDP mixes up stocks, hurts bonds

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Stocks were mixed on Wednesday and went on a rollercoaster ride after opening sharply higher. Up 72-points at the open after a big GDP report, the Dow dropped precipitously and within 90-minutes was down 95 points. All this was well before the Fed policy statement was announced.

After the announcement, the Dow erased all of the early losses and pushed back into positive territory before settling back down and closing down 32-points.

Daily TSP Funds Return

The small caps outperformed again and the S&P 500 was flat. The I-fund owed some fair value and paid it back yesterday, and the F-fund (bonds) fell sharply on that big +4% GDP number.

The SPY (S&P 500 / C-fund) ended the day just barely higher yesterday and right in the middle of its wide daily trading range. It has gone below the 20-day EMA for a third straight day, and closed below for two straight. Boy, this chart looks like it can go either way from here and some indicators are suggesting that things may be getting a little oversold. But if this market is going to change character and rollover, it would not be surprising since we've seen a few indicators suggest that as well. Who has a coin that we can flip?


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

The Wilshire 4500 (S-fund) closed for a 3rd straight day below the 50-day EMA, and that is a warning sign. Small caps have outperformed this week but their charts are still threatening to break down.


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


The Russell 2000 saw the 20-day EMA fall below the 50-day EMA, and that is also a warning sign, but it is common to see an oversold bounce when that happens. Once the overhead open gap gets filled (red), the Russell will really be tested as the upside draw [of filling the gap] will be over, and the 20 and 50-day EMA's could easily act as resistance.



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


The EFA (EAFE / I-fund) broke below the bear flag we've been watching, but was able to close back above the bottom of the flag giving it another chance at holding. The 50-day EMA is just overhead so the short-term battle will be between the bottom of the flag and that 50-day EMA.



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


(We'll take a look at some weekly charts in today's TSP Talk Plus report.)


This chart only goes to 2011 but it does represent a 62-year average of the S&P 500's return by month. You can see that only September has a worse average monthly return. But to put things in perspective and show this is not a primary indicator, February is tied with August on this chart as the 2nd worst of the year and the S&P 500 was up 4.6% this past February.


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

The AGG (Bonds / F-fund) fell sharply on the strong 2nd quarter GDP number of +4% and the revision of the 1st quarter to up to -2.1% (from -2.9%). A strong economy would mean higher interest rates, which would not be good for bond prices and the F-fund.


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

We get the July jobs report on Friday and consensus estimates are looking for a gain of 220,000 jobs and an unemployment rate of 6.1%. We have our month jobs report contest going on in the Forum if you are interested.


Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the Sentiment Survey Results and its TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at TSP Talk Market Commentary

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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