TSP Talk Blog

The initial reaction after the Fed's policy statement announcement was rather benign. Then we experience a bout of selling, followed by the relentless dip buyers who did their thing into the close. By the close it was a mixed bag as the Dow gained a solid 46-points, while the S&P was down slightly, and the Nasdaq and small caps saw more moderate losses.

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The Transports also had a bad day so the two leaders from the prior days, the Transports and the small caps, both lagged on Fed day, pulling back from some resistance we talked about yesterday.

The Fed raised the Fed Funds Rate another 0.25% bringing the target range to 1.00 to 1.25%. "What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis," Fed Chair Janet Yellen said.

After 3 or 4 rate hikes the stock market would normally start to put on the breaks, but that was in the pre- 0% interest rate days. The recent hikes bringing the rates to just 1% may not have the same impact, but still, 1% is 1% higher than it was 18 months ago so there could still be a reaction, and perhaps the more interest rate sensitive small caps have been telling us since they started to underperform this year.

The futures were getting hit on Wednesday evening so we'll see if that translates into a negative open on Thursday, and if the dip buyers will jump right on it again.

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The SPY (S&P 500 / C-fund) moved down to fill that small open gap and that was all the dip buyers need to get back on the buying bandwagon. And why not, I guess? It has been working since November.




The DWCPF (S-fund) didn't fair quite as well as it gave back a large part of Tuesday's gains but remains in a short-term rising channel. The question here is how strong is that resistance line at 1235?




The Dow Transportation Index opened higher but it too failed at the resistance line we talked about yesterday. Still, the trend is up and I suppose we should give it the benefit of the doubt until that channel breaks.




The price of oil did break down from that 2nd bear flag yesterday and it is now flirting with the May lows. I can't help but be surprised that we are seeing these low prices as we move into the peak driving season.




The EFA (EAFE Index / I-fund) basically filled that small gap and reversed higher back into the rising channel, but the post-fed reaction saw a bounce-back in the dollar and that brought the EFA back below that channel support line.




The High Yield Corporate Bond Funds hit new highs yesterday giving the rally continued credibility.




The AGG (Bonds / F-fund) rallied yesterday and the cup and handle formation did what they are supposed to do. That is, breakout, pullback to the breakout line, then resume the upside. The Fed announcement took bonds off their morning highs when they talked down inflation, but this chart still looks bullish for bonds, although there is an open gap on the downside that may need filled.





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

Tom Crowley


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