TSP Talk Blog

It took longer than anticipated, but the Dow finally made it above 20,000 and while the fanfare was grand, a little of the luster was taken off the shine because the media beat it to death for weeks before it happened. The Dow gained 156-points closing at 20,069 and of course that is now rearview mirror data, so what's ahead?

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The story has been painted as a bullish one as Trump's proposed policies of lower corporate taxes, deregulation, and repatriation of overseas cash would be a great foundation from which to launch stocks. The only problem is that most of the details on that will have to get through congress first so the market is buying the rumor but there is nothing concrete yet.

The 20,000 mark should hit the evening news across the country and of course Joe and Jane SixPack will hear the great news and decide that maybe it's time to get back into the market. That could provide a little more follow-thorough to the rally, but it probably won't be Joe and Jane taking profits when the sell the news kicks in.

The SPY (S&P 500 / C-fund) broke out convincingly on Wednesday after Tuesday's test of the resistance line. It looks like long-term resistance will be in the 230 area, but it is rising. Clearly it is closer to the top of that large rising trading channel than the bottom and there is a lot more room below than there is on the upside, but right now the bulls have the momentum.




The DWCPF (S-fund) gapped up also breaking out. We knew it was likely going to be all or none on the breakouts since most of the major indices were hitting that overhead resistance. It turned out to be all. I like the look of a breakout but there is a tendency for some profit taking near new highs, especially when a open gap is created.




The EFA (I-fund) led the way again as the dollar was down about 0.35% helping the EFA to a gain over 1%. Another gap was opened, but it clearly ignored the first one near 58.




The High Yield Corporate Bond Fund confirmed the rally by also making new highs.




The Volatility Index hit a new multi-year low yesterday, falling down to 10.5 before closing at 10.8. That's a lot of complacency out there, but while a rise in volatility is probable in the coming days or weeks, it doesn't always lead to stock market losses.




This monthly VIX chart (each candlestick represents one month of action) goes back to mid-2006 and you can see the VIX is hitting lows rarely seen. It hit yesterday's level once in 2014 and stocks continued higher, although that month that it hit 10.5 the market was down. Back in late 2006 and into early 2007 it repeatedly hit 10.5 and lower without many repercussions, but of course stocks made a multi-year peak a few months later. Bottom line, this rally doesn't have to end because of this low VIX number, but the odds are starting to favor some volatility coming.




The AGG (bonds / F-fund) fell as investors opted for stocks over bonds. It's below the 20 and 50-day EMA's, below the longer-term resistance line, and below the rising resistance line of its relief rally. Not much to like here.




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

Tom Crowley


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