TSP Talk Blog

Stocks continued their move higher after a small pause over the prior few days. The Dow has been up for 9 straight days and of course that streak can't last forever, but momentum remains on the bulls' side and the bears can only sit back and watch or give up and join the bulls. The Dow was up 36-points as the large caps underperformed the small caps on the day.

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My approach to analysis is less about fundamentals and more on charts and indicators, which should be an indication of what the fundamentals are doing, but they do stray from each other occasionally. Yes, the charts look good and that is a reason to be in this market, but is the economy really strong or strengthening? If you say yes, then you have to ask why central banks, including the Fed, cannot raise rates from their near 0% level, and in some cases negative rates overseas?

This is why many are missing the rally and they may be slowly capitulating now by finally buying and that may be the fuel - or fumes - the indices are running on right now, in my opinion.

The other possibility is that the market, which is a leading indicator, sees better things coming down the road, and the Fed has not yet reacted to it. Instead they are fixated on things that can spook the market, like a Brexit vote. the other theory I have been saying is that the Fed was not going to raise rates before a presidential election no matter what.

Whatever it is, we should try to take advantage because it won't last forever. Whether it will end at the end of the week, or the end of the year, we don't know, but the trend is up and fighting the trends tends to be a losing battle unless you are good or fortunate enough to call a top (or bottom).

The SPY (S&P 500 / C-Fund) continues to defy gravity as it broke out again above the mini-flag formation it created during its short pause. We've seen moves like this before and they tend to go longer than seems reasonable, mostly because of what we have said many times - the underinvested want to join in on any weakness and we saw that happen again. If you look at the chart there have not been many opportunities to buy weakness so patience runs thin while they, the underinvested, watch the indices rise without them.




The DWCPF (S-fund) also broke out of a flag formation as small caps outperformed the large caps yesterday.




The price of oil continues to consolidate above the 200-day EMA, which acted as support yet again yesterday. The 20-day EMA has now moved toward the 50-day EMA, and that is usually a sign that the overbought levels have been erased. It seems now or never if the rally in oil is going to resume, and the strength of the dollar may be the key.




The EFA (I-fund) broke above a bull flag as it moved back above the 200-day EMA.




The High Yield Corporate Bonds are still flying high, which is a good sign for stocks.




The AGG (Bonds / F-fund) was down slightly and remains in the rising wedge formation below the resistance line. It looks like the 20-day EMA is trying to hold as support as it nears the apex of the wedge.




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

Tom Crowley


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