TSP Talk Blog

Stocks got an early boost from a better than expected jobs report. There was some profit taking after the initial opening spike, but the rest of the day saw a back and forth battle with the bulls grabbing a modest victory. There were 209,000 jobs added in July and the unemployment rate hit 4.3%. It looks pretty good but wages could have been better and the Fed was probably hoping to see more growth there.

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I would have expected a bigger rally with a report like that, but the Dow has been making new highs for a couple of weeks and we know stocks aren't supposed to go straight up so a little profit taking seems like a reasonable expectation this week.

The small caps had a good day on Friday and the divergence we are seeing between the large caps and the small caps seems to be directly correlated to what the dollar is doing - so it's not just the I-fund being impacted by the movement in the dollar. The large caps have been seriously outperforming those small caps during this dollar decline.



On Friday we saw a small pop in the dollar, and the small caps got more attention. This has to do with the international exposure of larger companies that benefit when goods are cheaper overseas when the dollar is falling, so sales / earnings tend to pick up. That's not as big of a factor with small companies.


The SPY (S&P 500 / C-fund) has been trading in such a tight range and that can be looked at from the glass half full or half empty perspective. The S&P has been holding up despite the market leaders lagging, so it could be the dollar holding it up. On the other hand, it may be a matter of many investors holding little cash and being nearly fully invested already, leaving a low supply of ammunition with which to continue buying.




The Dow has been moving to new highs pretty much daily over the last couple of weeks, but it's interesting that only 4 Dow stocks made a new high on Friday (out of 30). You can see that fewer stocks seem to be participating in the rally.




The DWCPF (small caps / S-fund) posted a moderate gain on Friday and that helped it hold above the 50-day EMA again, although there could be some resistance at Friday's highs as the old support line was broken and could act as resistance - but I think the 50-day EMA is probably more significant here. The open gap below 1230 was nearly filled last week, but not quite.




The Dow Transportation Index is holding pretty firmly at the 200-day Simple Moving Average, and we've seen a nice bounce off of that support so far. The trading channel is still pointing downward so this week could be a big test for this market leader.




The EFA (EAFE Index (I-fund) is just floating near the all-time highs, thanks to the dollar's weakness...




... but as we've been saying, the downtrend in Europe may be telling a different story. Those European markets like the DAX, the FTSE, and this chart of France's CAC Index, had a nice day on Friday as they reacted to the positive jobs report, but they are now testing the tops of those descending channels.




The AGG (Bonds / F-fund) pulled back on the strong jobs report on Friday and that did some technical damage to the chart as the cup and handle breakout has now failed. Yes, it could jump right back above that resistance line, but this is why I like to see a breakout / breakdown hold for at least 3 days before confirming it.




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

Tom Crowley


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