TSP Talk Blog

Stocks rallied for a second day on Wednesday as the Dow added another 145-points. The question on investor's minds is whether this is for real or if it is one of the pre-holiday reversals that we often see before a major holiday? You know, the ones that reverse back after the holiday?

Daily TSP Funds Return More returns

There are some technical questions too as you will see in the charts below, but now that we've had a decent bounce, we have to wonder if we can trust it as we head into the three-day weekend.

This chart is 4 years old (does not contain prior 4 year's holiday data) but it is a 62 year average of returns and percentage of times positive for the trading days surrounding Memorial Day weekend.


Chart provided courtesy of www.sentimentrader.com

It shows that the market has tended to do better the week after the holiday than before, but major holidays in general often have reversals after them, from whatever the action was prior to the holiday. And that's the question... If this week's strength holds up, will it be reversed next week?

The S&P 500 (C-Fund) now has a fully formed head and shoulders pattern (H&S) which we have watched for weeks. As I have stated, often times H&S patterns are continuation patterns, meaning whatever the trend was prior to the H&S, is the same direction it will break once it completes.

Then there's the head test theory that we have talked about many times, and right now the H&S is testing the head, and that could be tough resistance. There's many possibilities, which doesn't make it easy for us to make a call. We've seen some very positive developments, like the 200-day EMA holding, but there are some concerns as well.




The DWCPF (S-fund) gained 0.64% yesterday and we saw the major moving averages get broken on the upside, which is very good action, but like the S&P - although not shown on this chart, there is a head test of an H&S pattern playing out as well.




The Nasdaq 100 (QQQ) gapped up on Wednesday (creating a small open gap) and it is getting close to testing the longer-term descending resistance line off the December high. This could be a cup & handle formation, which do tend to break to the upside, but now we have to be concerned about whether next week will be a reversal week, of the recent strength.




The price of oil is closing in on the $50 mark, something it hasn't seen since October. Should it get that high, there is a possibility of a double top resistance near that October high. Stocks have decoupled some from following the price of oil, but clearly the rising oil prices shows some strength in the economy and stocks may be feeding off of that now. But if oil tops and pulls back, will stocks move down in sympathy?




The EFA (I-fund) gapped up for a second time this week (red boxes) but it filled a gap (blue box) that was opened on May 2. The descending resistance line was broken this week, as was the 200-day EMA, but once again, is this just a temporary pre-holiday reversal?




The AGG (Bonds / F-fund) remains in a bear flag just above the support from the 50-day EMA.




Per www.tsp.gov: "Some financial markets will be closed on Monday, May 30th in observance of the Memorial Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (May 30th) will be processed Tuesday night (May 31st), at Tuesday's closing share prices."

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

Tom Crowley


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