TSP Talk Blog

Stocks rallied again on Thursday, making it 4 up days in the last 5, and the one down day was a minor pullback that filled an open gap. The Dow gained 62-points and the TSP funds saw green across the board.

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The gains weren't huge, but they were broad as the big caps, small caps, Nasdaq, Transports, and international stocks all closed higher, and bonds were able to come away with a solid gain as well.

The SPY (S&P 500 / C-fund) inched closer to that overhead open gap, but there is also some overhead descending resistance in the area. This kind of resistance isn't usually too strong but the top of an open gap can be. It's back above the 20 and 50-day EMA's which is big. The concern here is the very light volume over the last 4 days, compared to the relatively high volume during the decline.


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

The Wilshire 4500 (S-fund) pushed above the 50-day EMA and the descending trading channel. If you're in the S-fund, you can't hate that action, but it has to hold for 3 to 5 days to be confirmed, but it's a great way to start. It's not a heavily followed index so technical analysis isn't quite as effective on it.


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

The Russell 2000 saw tepid gains yesterday (+0.14%) and it has not yet pushed back above the 50-day EMA. The $RUT has been trading below the 50-day EMA since mid-July, the longest of the major indices, and that makes the resistance a little tougher to break. As we start seeing some overbought readings in the indices, it will be interesting to see if the Russell has the strength to break through as the S&P has already done.


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

The leader to the upside has been the Nasdaq 100 (QQQ). It filled its open gap on Thursday and any further upside would have this index flirting with new highs. Double tops tend to hold on the first attempt, so we'll have to see how this leader deals with that overhead resistance.


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

The Dow Transportation Index has gained nearly 300-points since it bottomed just a week ago today, and has made its way back above the 50-day EMA. It will be important for this index to break above current levels, otherwise we could be seeing the formation of a large head and shoulders pattern.


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

The EFA (EAFE / I-fund) rallied with the rest of the indices as Japan had a good day, and the European markets were up despite some very disappointing economic numbers out of the region. Germany posted a negative GDP and France is still showing no growth and is in a recession. Much of this may be due to their relationship with Russia, so this may not go away too quickly. Regardless, the EAFE has been hit hard lately and it had been due for a strong relief rally.


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

The IEF is the 7 to 10 year bond ETF and this actually looks bullish for bonds. Why would bonds rally when stocks are rallying? That is the question. The fact that the European economies are struggling so much could be the answer. Their bond yields are dropping too (when bonds go up, yields go down). The German 10-year "Bund" yield fell below 1% yesterday, before closing back above it.


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

The only reason I can think of why bonds are rallying and yields are falling in the U.S. and Europe, while U.S. stocks are back in rally mode, is that there's no better place right now for folks to put their money since European stock markets have broken down. If that's the case, the rebound in the U.S. could be short-lived. We'll see.


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Thanks for reading! Have a great weekend!

Tom Crowley


Posted daily at TSP Talk Market Commentary

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