TSP Talk Blog

Stocks rallied strongly yesterday as we saw 3% to 4% gains across the board, but the bond market didn't rejoice and that may be a problem. The Dow gained 291-points on the day.


For the TSP, the C-fund gained 2.94% yesterday, the S-fund was up 3.89%, the I-fund jumped 4.20%, and the F-fund (bonds) gained 0.14% (corrected).

As we talked about yesterday, many times the pre-holiday action gets reversed after the holiday and yesterday's 291-point gain recouped the 262-point loss from Wednesday and Friday. There are plenty of reasons to believe that the rally has more legs, but there are also many that suggest this rebound will be short-lived.

The S&P 500 recouped Wednesday and Friday's losses, but last week Monday and Tuesday were also down so we'll have to see if this post-holiday rally can grab those losses back as well.

The 20-day EMA recently moved back below the 50-day EMA and when those two cross, it is usually a sign of being short-term oversold. (It would be an overbought sign when the 20 moves above the 50.) The resistance is plentiful as the 20 and 50 EMAs will be a challenge, and then there is the red descending trendline, which is in the same neighborhood as the 200-day EMA.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Pulling back on the chart a bit and we can see that the trading ranges may be a lot wider than the top chart might indicate. If somehow last week's lows can hold, we could possibly have a new uptrend started but it is way too early to say. We'd have to see a move above the October highs before that would be official. Until then, the 50-day EMA is below the 200-day EMA and that means bear market and the blue lines are unfortunately the current trend.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The Nasdaq has a couple of open gaps on the chart. Unfortunately, that makes it likely that we could test the bottom of the lower gap some time soon. The question is, what comes first? A rally up to resistance would fill the overhead gap, and that could happen before another leg down. Or...


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

... we could see the lower gap get filled, have it hold, and then see a leg up. Either way, I think both gaps have to get filled at some point.

As I mentioned above, the bond market did not exactly embrace this stock market rally. We would normally see bond yields move up when the stock indices rally this sharply, and they did early on as the yield moved over the 2.0% level intraday. But it didn't last long as the yield on the 10-year T-Note hit the 50-day EMA and headed south again. It closed down near the day's low at 1.958%.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

If this rally in stocks is going to continue, we would want to see bond prices come down, and bond yields rise. If the yield stays below 2.0%, then I would expect this stock market rally to run out of steam quickly. I consider the bond market the "smarter" money, so if we see another rally in the stock market today and yields fall again, I may do some selling.

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

Tom Crowley

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.