TSP Talk Blog

Stocks rallied strongly on Friday following a nearly perfect capitulation day on Wednesday, and an indecisive "spinning top" day on Thursday. The Dow gained 210-points but percentage-wise the broader indices performed even better. The rally was fueled by a mid-week reversal in the price of oil which is up an amazing 20% in the last two days.

Daily TSP Funds Return More returns

Small caps led the way on Friday and the I-fund also had a big day after a 6% rally in Japan, +3% in Hong Kong, and 2% to 3% gains in the European markets. Bonds were off slightly but not nearly as much as you might expect when stocks were up as much as they were, so investors weren't fleeing safety just yet.

When you get a correction like we have seen it is quite common to revisit the lows at some point. The problem is, it could be this week, or it could be after a rally that lasts a couple of weeks so it's just a matter of watching the action, and the volume on the days the market rallies.

The S&P 500 Index (C-Fund) responded as we might expect after a capitulation-like sell-off / reversal. Bear market rallies can be quite strong and they could last days or weeks, but there's a lot of resistance overhead and we'll take it a day at a time before declaring this a new bull market. A test of the recent lows is very possible at some point, similar to what we saw in September.


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

The weekly chart shows how nearly perfect the reversal was as far as successfully testing the October 2014 low and the 200-week EMA.


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

But, if we want to get in the weeds, the S&P 500 actually has a small small gap left open from back in February 2014. It is really small and probably shouldn't be a factor, but if last week's lows don't hold, the gap and the February 2014 low would be the next potential targets to look for. Thanks to the forum member who pointing this out last week.



The Dow Completion Index (small caps / S-Fund) looks like a classic bottom, and there are lots of overhead gaps that probably want to get filled, but this is a bear market and at this point I am not thinking anything more than bear market rally. That could change, but not yet.


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

The Dow Transportation Index had a positive day on Friday but it closed well off the high on Friday and actually created a possible negative reversal day, but the very positive close makes that less likely.


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

The EFA (EAFE Index / I-fund) has filled two of its open gaps (blue) while opening a new large one - the nearest open gaps are in red.


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

The price of oil has rallied strongly off the lows helping to fuel the rally in stocks, which have been moving in sympathy with oil all year. Again, bear market rallies can be explosive but it doesn't mean the bear is gone for good. The falling wedge was broken to the upside but the 20-day EMA and the top of the trading channel will give us a better idea if the downtrend is over. The overnight futures are slightly higher and if that holds, it should help stocks hold onto the recent gains.


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

The AGG (Bonds / F-fund) actually closed higher on Friday, which is a bit of a red flag for the stock market. You would think that bonds would have sold off as investors moved to stocks, but not yet so we'll see if this has any meaning. It did fall below support so there is new resistance overhead.


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


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: www.tsptalk.com/plus.php

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

Tom Crowley


Posted daily at www.tsptalk.com/comments.php

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.