TSP Talk Blog

It was another flat to modestly higher day for stocks on Friday as the Dow shed 3-points while the Nasdaq and small caps posted solid gains. The S&P was up slightly, as was the I-fund and bonds (F-fund). The afternoon trading saw the indices giving back early gains, but a late rally kept it a mostly positive day for stocks.

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The rebalancing of the Russell 2000 small cap index boosted volume but to be honest, I don't know how much that had to do with the relatively strong showing for the small caps. If it was related, perhaps there will be some profit taking early this week.

As you will see below, we do see some favorable flag-like action on many of the charts, except for on the Nasdaq where that market leader is creating more of a bearish flag.

We saw some rolling over in a few of the European markets last week, but no outright breakdowns yet. On the other hand the Chinese Shanghai Index is one to watch in the coming week as it has been holding below key moving averages after breaking down below them in the spring. It is not a part of our I-fund, but certainly an influence on global markets.

The SPY (S&P 500 / C-fund) has been holding up well above that 20-day EMA and this bull flag looking formation doesn't look too bad. If there's anything negative to say about the chart it is that the bulls have been unable to keep the pressure on after making new highs, while the bears have basically been hibernating. But of course that is how a bull flag is made... a spike higher followed but some downward consolidation.




The DWCPF (S-fund) also looks to be in a form of bull flag and on Friday it was testing the failed breakout level near 1230. The 20-day EMA is holding here as well and may be poised for a breakout, but I still wonder how much of the rally on Friday had to do with the Russell 2000 rebalancing and, if it was an impact, what does that mean going forward?




The Russell 2000 small cap index broke out of a flag like formation after holding at the 20-day EMA.




The Nasdaq has bee the laggard the last few weeks and instead of being in a bull flag like the other indices, it is still in more of a bear flag. This could easily move higher and void the bear flag, but the top of a bear flag is supposed to pose some resistance, so we'll see.




The I-fund was the only fund that was down for the week last week, and we saw some of the European charts starting to rollover a bit. Here's the London FTSE Index, which is trying to hold at the 50-day EMA.




The Chinese Shanghai Index has spent the last couple of weeks trying to get back above the 200-day EMA after falling below it in April. From a technical analysis point of view, this should fail here, just as it held as support in January.




Gold had been pulling back sharply from a double top to start the month, but there was some life to end the week with 3 consecutive positive days after successfully testing the 200-day EMA, potentially creating another higher low. I bring it up because, when gold and bonds are rallying, you have to wonder if investors are getting ready to move into a more defensive mode.




The problem with that theory is that bonds have been rallying for months despite stocks doing well. The AGG (Bonds / F-fund) close at a new 2017 high. So what this is telling us, I'm not sure. Bonds tend to rally when the economy is suffering but we've seen no meaningful signs of that yet. It may be the lack of inflation.




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

Tom Crowley


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