TSP Talk Blog

The market continues to party like it's 1999 as the Dow gained another 66-points yesterday, and that would have been over 100-points if it hadn't been for IBM's bad earnings report. The other indices are stretching into new high territory, although the market leading Transports faulted on some weak earnings.

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The market seemed to kick it into gear around 11:30 AM ET yesterday after Paul Ryan announced that congress will attack tax reform after the August recess. Apparently investors are quite optimistic about that despite the fact that nothing seems to ever really get done with the great divide in the parties. The market also appreciates gridlock, so perhaps that was part of the reaction, knowing no major changes are going to get done - who knows?

But an overview of this latest push higher from a rear-view mirror perspective, the easiest kind of perspective, is that we got a very strong June jobs report seemingly indicating a spark in the economy, but then Janet Yellen came in and said things may not be a good as they seem so we will stop raising rates for now and play it by ear. So the market, which loves cheap money, got a boost from the strong economic data and from the Fed who changed from hawkish to dovish to the surprise of investors.

This seems to be having the effect of pulling any leftover holdout bears over to the bullish side, which gives us new highs and few bears. That's a recipe for a breakdown but stocks tend to overreach to the upside in a bull market, and downside in a bear market, before things snap back.

The SPY (S&P 500 / C-fund) pushed through yet another layer of resistance yesterday with another gain and another small gap up opening. It could be another leg higher starting, or it could be what they call a blow-off top. Who knows, but certainly anyone not embracing this rally has been getting a little steam rolled in July. We're already in the negative seasonal part of July, but we haven't felt any effects from that yet.




The DWCPF (S-fund) also blasted off to a new high and broke out from a sort off triple cup and handle formation. If there's anything technically negative here it's that we have seen pullbacks this year, that start just after a breakout to new highs.




The Dow Transportation Index felt the pain of a couple of poor earnings reports yesterday. I'd say no big deal except that the action pulled the index back under the March highs, and below some rising support.




The EFA made a new high yesterday but I wanted to show the top three market charts out of Europe, that could be telling. yes, the falling dollar has helped the I-fund, but there may be some underlying weakness if you take the dollar equation out of it, and it looks like the dollar is due for a bounce anyway.

Here's the German DAX and that's a possible bear flag below the 50-day EMA.




The French CAC 40 Index has been in a downtrend since its early May peak...




And the London FTSE may also be forming a large bear flag if it can't break solidly to the upside in the coming days.




The AGG (bonds / F-fund) moved up to touch the bottom of that open gap that we have been watching. We could see some resistance here, or more likely once the gap is filled. Perhaps a double top? The question is, how low can yields go (yields fall when bond prices rise) in an economic environment that is supposedly strengthening?




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

Tom Crowley


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