TSP Talk Blog

Stocks had their worst day since the Fed's rate hike two weeks ago. After opening in positive territory, the Dow ended the day with a 111-point loss pushing further away from its hyped 20,000 level. The broader indices like the S&P 500, Nasdaq, and small caps lost closer to 1%. There's no doubt that the early momentum has been fading into the close of late. Not usually a good sign but it could also change on a dime during a holiday week.

Daily TSP Funds Return More returns

Perhaps a well needed break but it comes during a week when the bulls usually rule the roost. The word is that pension fund rebalancing has them needing to sell billions in sell stocks and buy bonds before the end of the year to get their portfolio allocations back at their normal stocks to bonds ratios. With stocks surging since the election while bonds were falling, they needed to lighten up on stocks and buy bonds to get to their 70/30, 60/40 or whatever ratio they require to start the New Year.

When volumes are low it doesn't take much to move the market, up or down, and in this case it appears that the selling from the pensions, or just the threat of the selling, pushed stocks lower fairly easily. How long it lasts remains to be seen but as I said, apparently it needs to be completed by the end of the year.

Perhaps investors have not forgotten that the last three Januarys have been pretty bad and are getting their accounts in order, but again volume has been very light and it doesn't seem like a mass exodus yet. It's just one down day.


The SPY (S&P 500 / C-fund) completed its pennant formation fake-out breakout, into a breakdown. That's the red pennant formation on the chart. The dashed blue line shows that it may still be in a viable bull flag and the 223 area seems to be about where it needs to hold. That coincides with the 20-day EMA which is a nice clean spot for a pullback to find support. It it falls below that, we may have some trouble heading into the New Year. Volume was light and that's typical this time of year and means the indices can be pushed around by big money.




The DWCPF (S-fund) is testing its 20-day EMA now. We've been looking for some kind of a pullback and now the question is, will the immediate support hold and will the strong seasonal week provide enough bulls to keep things afloat? Remember, its usually the bears (traders) that take this week off while money managers do their typical end of year window dressing.




The last three years saw negative returns in Januarys. This next series of charts shows some of the more meaningful moves to end an old, and start a new year. The first one was just last year where stocks were basically moving sideways to slightly lower before a big decline to start 2016.



In 2013 we saw a gap up after a late 2012 pullback This was the prior election year action.



In late 2010 stocks rallied into the end of the year although the final week or so saw more sideways action. Once the bell rang in January the buying resumed.



In late 2009 stocks were doing fine going into the last week of the year but the year ended with three days of selling. Stocks rallied for the first two-weeks of 2010 before everything turned around and we saw some stiff losses by the end of January that year.



Finally, 2008 ended with a rally after a terrible year for stocks. Once January came, the selling resumed on the 3rd day.



I don't know if that helps you or confuses you more. It's tough to say. Whichever way it goes on January 3, it seems the initial move to start the year is not quiet.


The EFA (I-fund) broke down from its bear flag yesterday and still has some room on the downside before the open gap gets filled.




The AGG (bonds / F-fund) was up yesterday but in after hours trading it looks like it is poised for the long anticipated move we thought was possible. I'm basing that on the AGG after hours trading and the 10-year Treasury futures market. For those of you who hung onto the F-fund in hopes of catching a relief rally, you may finally be rewarded. I wish I was smart enough to have held on.




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

Tom Crowley


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