TSP Talk Blog

Stocks rallied again on the 2nd trading day of the new year. The Dow added another 99-points or 0.40% while the Nasdaq led for a second straight day. Small caps and the I-fund lagged a bit as the dollar rallied from some deep oversold levels.

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If you are more of a market timer and missed out on much of the rally in 2017 because there were no decent pullbacks to buy in the latter half of the year, than you probably missed the rally to start 2018 because timers are still waiting. Pullbacks have been measured in minutes and hours of late, rather than in days and weeks, and that makes it very tough for those of us with noon ET deadlines and basically just one opportunity to buy each month.

The VIX (Volatility Index) dipped below 9.0 yesterday for only the 6th time EVER, but the it's 4th time in the last few months. It appears that no one is pricing in any kind of event that could shake up stocks in the next month. I guess the only thing to say about that is, either the market continues as usual with the prospect of no danger ahead, or something does go wrong and most investors will be unprepared for whatever that is, and the selling could be panic like. The latter may be the less likely to happen, but of course bad thing do happen in the world.

Of course you don't want to invest with the attitude that something bad could happen, but we still have indicators and historical tendencies that suggest when it could be more likely, and we've actually been in that position for longer than normal. Remember, there's been no 10% correction for the S&P 500 for a few years, something that has normally happened on average of once per year. Not to mention the lack of even 5% or 3% pullbacks which are historically common, but recently absent. As a matter of fact, if we don't get a 5% pullback between now and next Tuesday, it will be the 2nd longest stretch in U.S. history without one.

The 30-year seasonal chart for January showed that January 3rd was actually down slightly more often than up, but that when it was up, the average return was quite good, and that's what we saw yesterday. Today, January 4th, doesn't have that same advantage as it has been down more often than up over the last 30 years, and it has a negative average return. Nothing major, but well below a random day.


Chart provided courtesy of www.sentimentrader.com


We get the December jobs report this Friday and consensus estimates are looking for a gain of 188,000 jobs, and an unemployment rate of 4.0%.


The SPY (S&P 500 / C-fund) moved to new highs yet again yesterday as the holiday seasonality gave the bulls just what they wanted. There was a bit of resistance near 270 on the SPY but it closed above it rather easily. Now 272 - 273 is the next level of resistance.




The small caps / S-fund didn't quite perform as well as the large caps but it did manage a new high. It looks like it wants to breakout, so I'm not sure what held it back... perhaps the rally in the dollar.




The EAFE Index (I-fund) poked its head into new high territory but closed slightly below the mid-December high. The dollar finally stopped falling and depending on how much it may want to bounce, the I-fund could be due for a pause.




Here is the chart of the Dollar and you can see that after Tuesday's breakdown below support, there was a little buying after the Fed meeting minutes were released yesterday. There are still a few open gaps above that could be targets for any rebound.




The High Yield Corporate Bond Fund rallied strongly yesterday and this is typically a good sign for stocks, as if they needed any more good news.




The AGG (bonds / F-fund) was relatively flat yesterday although yields did move up after the Fed minutes were released.




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

Tom Crowley

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