TSP Talk Blog

Stocks wavered back and forth on Friday as investors were a bit tentative in front of another weekend. Stocks have been down on the last trading day of the week for 6 straight weeks. This week it was the French elections holding back the bulls, and of course the continued saber rattling out of instable North Korea.

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The Dow ended the day down 31-points with some deeper dips from the broader indices like the S&P and small caps. For the week however, stocks held up well despite the world events with the small caps leading the way gaining 2% on the week.



Round one of the French election is over and it was being compared to the Brexit vote and the U.S. elections as far as a possible shake up for the market. Of course both of those "disaster" outcomes, as the pundits thought, turned out to be big buying opportunities as stocks rallied after each.

I was reading the hype about Le Pen moving to the 2nd round of the French election. If you haven't heard, a Le Pen victory was going to be another one of those "disasters" for the market as she said she would hold a referendum to pull France out of the EU so that outcome could threaten the euro currency and of course that would influence currencies around the world causing some havoc in markets.

The fact that she made the 2nd round of the election is really just hype because the concern was that she would get the most votes in that first round. She did come in a close second place and now the election run off in May will be between her and the centrist Macron. It is more likely that Macron will get the most of the votes from the other 3 candidates who are now out of the race.

The futures market has not opened yet as I write this on Sunday afternoon, but I believe the market will like this outcome. I'd be surprised if it didn't despite that hype off Le Pen still being around for the second round of the election. I don't believe Le Pen has much of a chance in the May 7 run off. Here are the current odds from one betting site. Basically it says Macron is a 4 to 1 favorite.



Oh, and we could have a government shutdown after the Friday budget deadline. Boy, there's a lot going on. There are issues in Trump's budget that the democrats will just never vote for like funding for "the wall" and defunding Planned Parenthood, so this is where the battle will be this week.

As for the economy, there are some warning signs out there with the recent significant declines in economically sensitive markets like iron ore, copper, silver, and of course oil was down sharply last week. At the same time the safety trades of bonds and gold have been doing well. What does this mean? That is the question, and the combination is a bit concerning.


The SPY (S&P 500 / C-fund) remains in below key resistance which looks like the neckline of a slanted inverted head and shoulders pattern. The battle here is between that overhead resistance and the support from the 50-day EMA which has held firmly. I still think that the market holding up in the face of the current global turmoil is a good sign, but how much more can it take?




The weekly chart shows a long term bull flag forming. Since its a weekly chart it could take a while to breakout, if indeed it does breakout as a bull flag tends to do. But it doesn't mean we won't see another move down to the bottom of the flag first (near 2300 area).




I am hearing talk of this "3 peaks and a domed house" formation; a formation that was seen before both the 1929 and 1987 market crashes. The formation is obviously a concern as you'll see below, but it just seems like these patterns, once discovered, rarely play out the way they did in the past. It's kind of like the observer effect in quantum physics where an atom changes once it is observed. We'll probably keep an eye on this for a little while, for entertainment purposes if nothing else, but if something comes of it, we'll be watching.




The DWCPF (S-fund) broke out above its descending resistance line and had a big week last week. That's two closes above resistance and we like to see 3 to 5 before we say it's confirmed. It also closed above the 50-day EMA for a 3rd straight day.




The Dow Transportation Index is back testing the 50-day EMA which it close just barely above on Friday. You can see how important this pivot point is as we could see a breakout to a higher high, or another failure at this 50-day EMA level.




The price of oil tanked last week. Inventory numbers were higher than expected. This is the time of year that oil tends to move higher as driving increases and demand rises. It was interesting that the Transports were up last week while oil was dropping. That's actual the more normal reaction but over the last year or so they have been moving more in unison than counter to each other.




The EFA (I-fund) has been trying to bounce off the rising support line and the 50-day EMA and has so far been successful.




The AGG (Bonds / F-fund) was up slightly on Friday but remains below the filled gap area that seems to be acting as resistance for now. It's had a great run in an environment where interest rates are supposed to be going higher so it seems to be a safety play. Bonds may continue to get a bid as long as the geopolitical events emit fear.




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

Tom Crowley


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