TSP Talk Blog

Stocks started out a little sluggishly on Wednesday but a steady grind higher saw the indices end the day with moderate gains, with only the Nasdaq failing to close in positive territory. The Dow closed with a gain of 79-points, or 0.32%, and it was the Transportation Index that led on the day with a 2.3% gain.

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So far we haven't seen any signs of the typical earnings season "sell-the-news" reaction. Earnings have been strong and Federal Reserve Chairman Powell's comments on Tuesday seems to be helping to buck that trend. And while we tend to see some selling even if the earnings are good, there's still a long way to go. We've only seen 10% of the S&P 500 report earnings so far.

The Nasdaq wasn't up on the day so perhaps we're seeing more profit taking in the high flying tech sectors while the beaten down financials have started to rebound from their recent lows. If you recall at the end of June we saw the financials being sold aggressively (the XLF was down for something like 13 straight days toward the end of June) as part of an effort to get those companies off money managers' quarterly reports, but we suspected they'd be bargain hunting again in July, and so far that's been the case.

Not only the Financials but the Industrials also did well, as did the Transports, which was triggered by strong earnings from CSX, and United Continental airlines.

It seems the more earnings and the economy are the main focus rather than trade, collusion, North Korea, and every other geopolitical event, stocks can shine. But even when we do get the occasional tariff tantrum, it has continually set up a new buying opportunity so even if I am talking bearishly, it's just short-term opportunities that I am looking for.

I still expect some profit taking during the second half of July, whether it's that "tantrum" or perhaps it won't come until we get an earnings miss from a bellwether company. IBM posted strong earnings yesterday, but American Express, eBay, and Alcoa reported disappointing reports after the close and were down after hours, but I don't know how much of a bellwether they are these days. But looking back at the charts from the first quarter earnings releases in mid-April, it does happen...




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The S&P 500 / C-fund is moving higher but the action has been quiet. This is about the time in July where we generally see a sell-the-news earnings reaction, something similar to what we saw in April, but it certainly isn't mandatory.




The small caps (S-fund) moved up on the day and the bull flag looks like it wants to break to the upside, as they tend to do, but there was no big rush to do so - perhaps because of the overhead resistance.




The Dow Transportation Index had a big day gaining 2.3% yesterday. It is now at the top of a bear flag, and while the April earnings season was preceded by more of a bearish mega-phone pattern, it ended up breaking to the upside. That is until it failed as earnings season was getting going back then. The candlestick I highlighted at April's peak looks eerily similar to yesterday's candlestick.




The Financials have broken their downtrend, starting July as strongly as June ended weak. Those 13 straight down days in June are now a thing of the past.




The EAFE Index (I-fund) filled an open gap this week and it's now up against the 50-day EMA and the top of a fairly strong descending trading channel.




Bonds / F-fund were quiet again yesterday with little to report.


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

Tom Crowley


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