TSP Talk Blog

Stocks continue to defy gravity as the relentless rally just kicked into another gear and the Dow gained nearly 300-points on the day. If Greenspan was still in charge he might be giving his "irrational exuberance" speech right about now, but what seems to be going on here is investors who have been waiting for a pullback, are tired of waiting.

Daily TSP Funds Return More returns

So the new highs and big move yesterday most likely triggered stop orders from those betting against the market, and that magnifies the buying, and also kicks in the program trading to ride the momentum. It's also a possible selling climax when that happens, but we're heading into the strongest seasonal stretch of the year and that's make the next few weeks rather interesting.

The hated market that we've had for the last couple of years - based on investor sentiment readings - is now starting to be loved and the fear is coming from the bears who are either not making money, or losing it if they are betting against it. That's a big change and potentially a great sign for the market over the next 6 to 12 months, but that doesn't mean it will go straight up for 12 months.

Tax reform, possible easing corporate regulations, and an economy that has shown signs of life where the Fed is ready to pull the trigger on a rate hike without a fear of slowing down the economy like last year, and we have an environment that is different than what we've seen in a while. It's not that stocks haven't been going up for the last few years, but for the first time we're seeing some interest from smaller investors. In a way that may be troublesome, but it's early in that cycle.

We also got a new Dow Theory Buy signal when the Dow Transportation Index finally made a new all-time high after two years. Normally a big double top like this would trigger some profit taking first but initially it triggers some excitement and buying from the trading desks.




It could fade once the initially round of buying is done from those Dow Theory traders as the indices become overbought, and the Dow itself may use it as a time to pause temporarily.


Chart provided courtesy of www.sentimentrader.com


There is an ECB (European Central Bank) meeting and policy statement scheduled today, which is the equivalent to our FOMC meetings. It could be a market mover.

The SPY (S&P 500 / C-fund) rallied 1.3% ignited by... something. It was likely a buying frenzy by those who have been on the sidelines who could not take the pain of being left out anymore, and / or those short the market either getting stopped out or trying to flatten those bearish positions as new highs were made again. It's certainly an emotional move that could produce some follow-through, but with the Fed on deck next week, it wouldn't be a surprise to see some profit taking in the interim.




The DWCPF (S-fund) also blasted off to new highs breaking above one rising resistance line, while pushing higher into a steeply rising wedge. Rising wedges do tend to eventually break down but this is almost as much a rising trading channel as a wedge.




The EFA (I-fund) had the opposite happen with its falling wedge, which tend to break to the upside, and of course it has broken above it this week. You can see it was more of a narrowing wedge-like formation than a trading channel and it worked.




The AGG (bonds / F-fund) had a nice day and broke above its little channel. This could finally be the start of the dead-cat bounce that we have been anticipating for a while.




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

Tom Crowley


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