TSP Talk Blog

On a day when the Fed announces a multi-trillion dollar unwinding of their balance sheet, the Dow and S&P 500 close in positive territory. It wasn't much of a surprise but it shows how unshakeable this market has become. Bonds on the other hand did lose ground on the day, but the bond fund is hitting some longer-term support now. The I-fund was up but should have been hit as well since the dollar rallied on the unwinding. Now, will the day after be as kind to the stock market after a night of digesting this information?

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The S&P 500 was down about 1.00 point just before the Fed announcement was released. Five minutes after the announcement it was down 1.50. Yawn. Two hours later it closed up 1.59. In between there was some noise to the downside during the press conference, but this Fed has rarely done anything to shake the markets.

Let's look at it this way. As we sit with a Fed funds rate near 1%, the Fed, who talked about raising rates to get back to more normal conditions, refuses to stick with that plan despite the stock market making new highs nearly every day, a dollar that is tanking, and we're coming up on the 10 year anniversary of the financial crisis that triggered the low rates. What are they waiting for? Does this make any sense? They did keep a December rate hike on the table, but they also said they'd raise in September a while back.

Of course the market loves this but it seems so artificial at times. They should not be concerned about the stock market so much - that's not their job. They should probably be more concerned about the dollar, and unwinding their balance sheet will help in that case.

Back to the seasonality chart we see that yesterday started a string of red days but actually the 20th was still up about 50% of the time over the last 30 years. For the next five days, the percentage of times positive goes well below that 50% mark. I don't expect this to be followed day by day, but as a guide, the market has some headwinds over the next week.


Chart provided courtesy of www.sentimentrader.com


The SPY (S&P 500 / C-fund) was up slightly yesterday but it did have a bit of a swoon during the Fed press conference yesterday, before the dip buyers jumped back in. It dipped back into that "F" flag briefly before closing back above it.




The DWCPF (small caps / S-fund) made a new high yesterday and of course that is a good sign that resistance did not phase it, but from a technical analysis view, the DWCPF is not a widely used index so I am more inclined to see what the Russell 2000 small cap index is doing.




And, as you see, it still has not made a new high so the double top potential is still intact here. If this index is ever going to exhale, it looks like now is a good time.




The Dow Transportation Index blasted out of the flag formation, the one I thought would act as a flat top. It rallied from the bottom of its recent rising trading channel, to nearly the top with the 1.55% gain. FedEx, which was down in overnight trading on Tuesday after its earnings report was released, reversed up and rallied strongly and closed in positive territory on Wednesday, helping the Transports.




The EAFE Index (I-fund) posted a negative outside reversal day on Wednesday after the FOMC meeting as the dollar rallied on the balance sheet news.




And here is the dollar (UUP) chart.




The AGG (Bonds / F-fund) was down on the Fed's talk of low inflation but it is trying to find support at two key levels... the rising support line and the 50-day EMA.




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

Tom Crowley


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