TSP Talk Blog

Stocks opened higher on Thursday but sellers came in fairly quickly, and another mid-morning rally was interrupted by a tweet from President Trump. The Dow ended the day down 29-points and the indices traded in a tight range but not all indices were treated equally. Small caps led with modest gains while the Transports lagged with a stiff loss.

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The things that were working in the first half of the year, like large cap tech, seemed to be the ones lagging yesterday, while laggards in the first half, like small caps and retailers, were the ones outperforming.

The focus remains on Washington as stocks started to reverse lower after a tweet from President Trump condemning congressional leasers Paul Ryan and Mitch McConnell. Paul Ryan tried to dismiss it as being nothing, but stocks still reacted negatively giving up those early gains. The market seems to want the republicans to come together so they can negotiate tax reform, so any obstacles will not be met kindly.

For a second day in a row the NYSE was down while more stocks were up than down on the Index. That's a nice trend, and a change, but it's only been two days so let's see how long it can last.

Immediately after the close we saw some buying in the futures markets, but because it was before the 5:00 PM ET close, the futures quotes won't show the 5-point gain - basically all of the Thursday losses - made after the close but it is fair value that will be added to the overnight quotes. For example, if the S&P 500 futures are at +1 heading into the open on Friday, the S&P cash market will likely open up 6-points higher. Just add 5 to the futures quote.

Janet Yellen speaks at the Jackson Hole meeting today so expect possible fireworks.

The SPY (S&P 500 / C-fund) has been trending down since that big negative reversal earlier in August, and the weakness this month has gone along with the historical seasonal norm. There is still an open gap below and there is some rising support in the same area that could draw some attention. It's been light volume trading so this could just be August jitters and whether that rolls into the final week of the month remains to be seen. Janet Yellen may set the tone for next week with Friday's speech.




The DWCPF (small caps / S-fund) posted a small gain and poked its head above some descending resistance. That's good but the moving averages are just above and that could cause some problems.




The Nasdaq 100 has been looking good to me for a while but the bull flag just keeps dragging out further and further. I did see a bright spot as yesterday's losses filled the open gap and bounced off the bottom of the gap and the 50-day EMA. This looks primed for a breakout to new highs, so if it fails, I will be concerned that the rest of the market will give up as well, since the Transports seem to be on their way to doing that too.




The Dow Transportation Index is in a critical position as it broke below some important levels including the 200-day SMA last week, and the 200-day EMA yesterday. We like like to see 3 to 5 closes below a breakdown before confirming it, so I don't want to call this dead yet, but it's getting closer.




The EFA (EAFE Index / I-fund) has been moving mostly sideways after successfully testing the 50-day EMA a couple of times. This could be a bear flag forming, but as long as the 50-day EMA holds the bullish case cannot be dismissed.




The High Yield Corporate Bond Fund made a two week high yesterday but technically there are some potential issues - one being a possible bear flag, and another being a possible right shoulder in a bearish head and shoulders pattern. At this point a move near the recent highs seems critical or the head and shoulders will be a reality.




The AGG (Bonds / F-fund) remains in a rising, tightening trading range. There resistance near 110.20 and rising support at 110.00. Perhaps Janet Yellen will force it to break one way or the other on Friday.




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Thanks for reading. Have a great weekend!

Tom Crowley


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