TSP Talk Blog

Last week's upside momentum continued for about half the day on Monday but it fizzled into the afternoon and we saw everything flatten out by the close. The Dow ended the day down 8-points, the S&P was down a few cents, and the Nasdaq gained 2. The small caps and international stocks saw slight gains while the Transports had a modest loss.

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Earnings season is kicking off and Netflix reported after the bell yesterday helping the Nasdaq futures bounce after hours. They actually missed on earnings but reported higher than expected subscribers, and gave positive guidance for the 3rd quarter.

So if our stock market is triggering off of movie watching, we have to wonder if it may be running on some fumes at this point. OK, there's more going on than tat, but we are overdue for a bit of a cleaning as the new highs lists and sectors continue to shrink despite the indices making new highs. According to LPL Financial, historically 91% of all years since 1950 have had a 5% correction. 54% of all years have a 10% correction. If we go the rest of the year without a 5% correction it will be two years and the 2nd longest streak of all-time.

I may have told this story before but I remember 1998 well. We were still on the one trade per month deal in our TSPs, and we had to make the IFT by the 15th of the month to be effective by the 1st of the following month. Fun, huh? Back then I followed the market but only knew enough to get me in trouble.

Well, the market was doing well that year with a long consolidation after a strong early year rally, and of course I was looking for a meaningful pullback / correction to get back in the market. Then we got another big rally starting in June, and by mid-July, when I had to decide where I wanted my money to be in August, I capitulated and bought back in. Boom!! August of 1998 was down 14.5%. I'll never forget it. That was a big wake up call and about when I started to get more serious about learning this stuff. I learned that it's never easy, but I have seen enough to know not to make some mistakes, although we always make a few.



Anyway, I'm looking at this market a little bit like that summer of 1998. I feel like there will be a correction, but when? And who will be the ones on the sidelines that give up and jump in because they can't stand missing out any longer?


The SPY (S&P 500 / C-fund) pushed near Friday's highs but the action faded a bit into the close and it closed near the lows of the day creating a small negative reversal day. That's not a major problem except that the upside momentum was halted and the bears may smell an opportunity.




The DWCPF (S-fund) led with a small gain on Monday but it is engaging with some overhead resistance that may cause some stalling.




The Dow Transports were down modestly, lagging the other indices. It is still trading near the highs and actually closed off the lows, so it's a mixed bag short-term. It looks like that 9600 area is the key support area to watch.




The EFA (EAFE Index / I-fund) was down slightly and it slipped just below that June 2 high. Yada, yada, yada, the open gaps could be a draw to the downside before a breakout to the upside holds.




The AGG (bonds / F-fund) was up slightly and in kind of a limbo after the recent pullback. There is a large gap overhead and now that Janet Yellen has taken her foot off the interest rate accelerator, lower yields and higher bond prices are no longer out of the question.




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

Tom Crowley


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