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The calm before the Fed

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Neither the bulls nor the bears were willing to trade with any conviction yesterday as it was a quiet day in front of the two-day FOMC meeting which starts today. The indices were mixed with the Dow dipping 22-points, while the S&P 500, Nasdaq, and small cap posted small to modest gains. The Transportation stocks were down.

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The Fed is the big story this week and Wednesday afternoon's policy statement could trigger some action. Trading volume was very light on Monday ahead of this FOMC meeting.

The other stories are the CBO reports on the new Healthcare bill but so far the market hasn't reacted much to it. I am also a little surprised that that this week's debt ceiling deadline isn't getting more coverage.

The SPY (S&P 500 / C-fund) continued its bounce off of the 20-day EMA with a small gain on Monday. Just looking at the chart, you can't be too bearish because 20-day EMA's holding up as support in a bull market is bullish action. The open gap was filled. I don't know what will come next week or even after the Fed and debt ceiling this week, but just looking at the chart, it looks fine. It still looks a little extended, but the short-term indicators are actually oversold.

The DWCPF (S-fund) had a nice day on Monday gaining over 0.3%, but its chart experienced a bit more of a pullback the last week or so. The rising support line and the 50-day EMA have held so far, but there is a hint of resistance between 1190 and 1200 in the form of the 20-day EMA and an old broken support line. That's where yesterday's rally stalled.

The Dow Transportation Index was the laggard yesterday and as always, the Transports are a good measuring stick for the economy so this chart must stay healthy. That could be a bear flag or a "V" bottom forming. It's too early to say but obviously important since they tend to have opposite results.

The EFA (I-fund) has been leading lately with it hitting another two year high yesterday, but it's also near some rising resistance.

The Japanese Nikkei made a new high yesterday and continues to bounce between recent highs and that 50-day EMA. It's a bullish formation but it hasn't been able to breakout after several failed attempts.

The AGG (bonds / F-fund) was down again as this market top has been forming in bonds for months. That brief break above the 200-day EMA was certainly a fake-out to get us thinking bullishly again on bonds, but in the end the bear market resumed. Those open gaps can be an upside draw in the short term, but with interest rates rising this year, there's no real reason yet to be bullish on bonds for the longer term.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to:

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

Tom Crowley

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S&P 500 (C Fund)
DWCPF (S Fund)
Dow Jones U.S. Completion Total Stock Market Index (^DWCPF)
EFA (I Fund)
iShares MSCI EAFE Index (EFA)
AGG (F Fund)
iShares Lehman Aggregate Bond (AGG)