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Sell the news?

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The volatility picked up on Monday as we saw a classic "sell the news" reaction to Friday's evening's passing of the tax bill in the Senate. The Dow was up by over 300-points at the morning peak before the steady decline ensued. It managed to hold onto a 58-point gain but most of the other major indices ran into negative territory by the close.
Daily TSP Funds Return


The Transports were the exception as it held onto an impressive 1.8% gain, but the S&P, small caps, and particularly the Nasdaq all closed in negative territory after giving up large early gains.

Yesterday we talked about how last week's reversals could give investors an incentive to be more quick to take profits on rallies going forward and it didn't take too long to see that develop. The S&P 500 saw its largest negative reversal day since February of 2016 after giving up gains of about 1%. And the S&P 500 futures actually had its largest negative reversal since January of 2000. Past reversals of this size have led to negative short-term returns in the days ahead, but were inconsistent when looking out more than several weeks.

With the sell the news reaction, investors may be turning their heads toward Friday where the government may be facing a shutdown if a budget deal not reached. At this point it is believed that a two week continuing resolution pushing the deadline closer to Christmas may be the best that we can expect. How might this impact the anticipated Santa Claus rally in the second half of the month?

The bulls have been in charge for a long time so it may be too early for the bears to declare victory, but yesterday was ugly and perhaps they (the bears) will be aloud to play with the ball for a few more days.

The November jobs report will be released this Friday morning and consensus estimates are looking for a gain of 190,000 jobs and an unemployment rate of 4.1%.


The SPY (S&P 500 / C-fund) made new highs at the open but reversed down hard giving up all of the early gains and it moved back into the intermediate-term rising trading channel and last week's breakout. Volatility is clearly starting to make an appearance again. Something that we didn't see much of this year.




The DWCPF (small caps / S-fund) also struggled at the top of its rising channel. It did fill that open gap on Friday but it may want to try to make another test of that low near 1310. I think a lot of folks who missed the recent rally would welcome another test of the 50-day EMA, but will the market cooperate and give it to them, and if it does, will it hold again?




The Nasdaq was the big loser on Monday and this chart of the Nasdaq 100 shows that it has already traded down near the bottom of its trading channel. Will buyers step up here or does that open gap near 6050 need to get filled first? I suppose buyers will show up, but then we'll find out if the dip buyers become sellers of rallies in this lagging index. The hot FAANG stocks have been a drag as we continue to see a rotation from growth to value stocks.




The Dow Transportation Index held onto some strong gains despite closing off the morning highs.




The EAFE Index (I-fund) held up well mostly because the overseas markets were closed before the damage was being done in the U.S. markets. The overnight U.S. futures market were soaring and the Asian and European markets were onboard, but that could change today.




The AGG (Bonds / F-fund) was flat on the day as investors tried to make sense of the reversal in the stock market. As we talked about, investors tend to run to bonds when stocks get volatile, but with interest rates moving higher a strong possibility, it wasn't that easy of a call.




Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the 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 www.tsptalk.com/comments.php

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Comments

  1. valleymd's Avatar
    Am I seeing this right? The S-Fund is up 9%? This seems like a glitch to me, as I have not found any articles about it on the financial websites, and this would be a breaking news headline, I'm assuming.
  2. tsptalk's Avatar
    The same thing happened last year and I suspect it's a glitch related to dividend payments.

    more... http://www.tsptalk.com/mb/the-s-fund...tml#post595017

S&P 500 (C Fund)
S&P 500 INDEX,RTH (^GSPC)
DWCPF (S Fund)
Dow Jones U.S. Completion Total Stock Market Index (^DWCPF)
EFA (I Fund)
iShares MSCI EAFE Index (EFA)
AGG (F Fund)
iShares Lehman Aggregate Bond (AGG)
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