TSP Talk Blog

Stocks opened higher yesterday and we saw gains across the board with the Dow gaining 168-points on the day. Some strong earnings reports helped push the Dow higher by over 200-points for much of the day, to a new closing high, while the broader markets were up more moderately and actually didn't get back half of Monday's losses.

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That 168-point gain was a bit of a smoke-screen because big gains from Dow stocks Caterpillar and 3M accounted for all but 40-points of that gain yesterday, and actually the rest of the market was basically flat to just slightly higher if you remove those two stocks. Unless you were invested in CAT or MMM, you probably didn't make a lot of money yesterday. Advancing stocks outpaced decliners by only 55% to 45%.



I know I sound bearish on stocks, but I'm only slightly so. I'm just waiting for opportunities and more bewildered at the market's lack of "churning", for lack of a better term. Markets tend to go up or down in steps... two steps up, one step down, etc. This one is is going 4-steps up, 1/2 step back and since that is not normal, I am looking for clues for when this anomaly may end. Diverging internals is one of the best ways to find them - normally.

As investors get more comfortable with stocks and feel it's the only option for their money, they of course put themselves at risk for when this market does "normalize." And it is a matter of when, not if. But when "when" is, that's the question.

Having gone through the dot com bubble bursting and the financial crisis, I know that good times don't last forever, despite feeling that they might. I was in the TSP when we had the one-day 22% decline in 1987, but my account balance wasn't significant enough at the time for me to be too concerned, but folks a little older than myself that experience it probably have an even different view of the markets than I do.

To put that into perspective, and 1987 was a very good year before that drop, a 22% decline today would be a loss of 5150 points. Yes, that happened in one day so if you get complacent and forget about your account for a while, if something anything close to that kind of action happened, it could change your world. The market did peak 2 months before the crash in 1987 so it didn't come out of the blue, and that scares me a little more because buying the pullback got someone caught in it as well, so we can't always protect ourselves.

Of course we don't want to approach the markets with the thought that a crash is around every corner, but they do come, and they are more likely to come during a correction phase of an overvalued market, which arguably, this one is compared to forward looking earnings, but we're not in a corrective phase yet.


The SPY (S&P 500 / C-fund) gained back a portion of Monday's losses - the worst one-day loss in weeks - and it is just one day, but perhaps it is a small sign. Yes, once again the bears could not follow through on Monday's losses but they did keep the rebound to a minimum despite the Dow gaining 168-points. Perhaps it's some internal weakness?




The DWCPF (small caps / S-fund) had a decent day getting back 0.20% after Monday's larger losses. It remains in the flag formation after the false breakout last week.




The EAFE (I-fund) was down slightly as the dollar is starting to climb gain and showing signs of putting in a possible bottom. How much would that (strength in the dollar) impact the hot hand fund in the TSP which feeds off of a weak dollar?




Earlier this month I posted a chart of Copper, which was falling and flirting with a breakdown. It is a very economically sensitive commodity and it may have been a warning sign. If that was the case, it was a false alarm because since then, and despite the dollar rallying, Copper has made new highs. Yesterday it did produce a possible negative reversal day so while the chart looks fantastic, there's a chance we could be seeing a double top if the reversal day proves to be a peak here.




The AGG (Bonds / F-fund) gapped down again as the dollar rallied and yields rose to their highest level on the 10-year Treasury since May. I hate these "h" formations and there are many strikes against this chart, but there is still a chance for a double bottom if the 109.20 area can hold. But it must get back above that 100-day MA this week.




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

Tom Crowley


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