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Big rally pushed indices to the top of bull flags

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A big rally on Friday turned what looked like would clearly be a negative week, into a positive one. After four straight days of wide intraday ranges that saw indices give up gains and close at their lows, Friday saw the indices close at the top of the range and, as you'll see below, on the brink of a potential bull flag breakouts.
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The Dow gained 348-points and we saw 1.3% to 1.8% gains in most of the major indices and there was basically no news except for perhaps a positive reaction to Hewlett Packard earnings as investors may have remembered, on a day where bond yields finally fell for a change, that the companies are in good shape.

There was a some late buying that pushed the indices slightly into a breakout territory, but arguably the bull flags that we have been watching haven't really broken out yet. It's very close and if they do breakout out it should be a move over last Monday's highs, or this could come back down to test the bottom of the flag again.

The S&P 500 / C-fund shows what we see in many charts; the bull flag looks ready to breakout, but without some gains today it could find itself back down at the bottom of the flag near 2700. Why Friday's rally held where the prior 4 failed could be debated, but it does seem like the drop in bond yields had something to do with it.

The weekly chart shows that the S&P 500 is still within that large rising trading channel after a breakout to start the year. The question now is whether the trading channel will remain true or if the highs in January now become part of the new upper end of the channel.

The small caps / S-fund are also in a bull flag with a mini-breakout but not a higher high yet. It was basically testing the upper end of the flag again, but for the first time it closed near the top of the flag instead of the bottom.

The Transportation Index is actually still in a bear flag officially. It closed just on top of the 50-day EMA but this is an interesting test for a bear flag formation.

The EAFE Index / I-fund closed below the 50-day EMA for a 13th straight day and the bull flag and 50-day EMA is also going to be tested again today.

The High Yield Corporate Bond Fund also hit the top of a bull flag and continues to bounce between the key 50 and 200-day EMAs.

The AGG (bonds / F-fund) rallied toward the top of its descending trading channel so we'll see if Friday's rally in bonds was temporary and the downward trend continues, or if they are finally ready for an oversold rebound.

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:

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

Tom Crowley

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S&P 500 (C Fund)
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)