TSP Talk Blog

Stocks opened sharply higher on Tuesday with the Dow up about 280-points in the first hour of trading, before things reversed course. The damage was minor as far as the daily loss goes, but a 300-point reversal is an eye-opener as the Dow closed down 10-points. We saw more moderate losses in the broader indices, while the small caps and Transports were hit hardest, and the I-fund was helped again by a weakening dollar.

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The rubber band stretched to what may have been its limit on Tuesday morning, which may turn out to be a turnaround Tuesday, but we've seen this before in this market, where pullbacks don't last very long. Will this one be different or is it already a buying opportunity?

I'm not sure if it is related, but Bitcoin and the rest of the crypto-currencies took a dive yesterday, so if the crypto-rich investors were somehow contributing to the stock market rally, either monetarily or emotionally with a "get me in at any cost" attitude, perhaps an correction in that market could rollover into the stock market? The other story this week is the budget talks in Washington D.C.. The deadline for a budget deal, or a kick the can down the road continuing resolution, is Friday night at midnight.


The SPY (S&P 500 / C-fund) reached for new highs to open the trading day on Tuesday, but closed lower on the day. It is sitting in an interesting area, basically on top of the old rising resistance line. It could hold there or move back into the channel where the 272 area would be the next potential level of support.




The small caps / S-fund posted an outside negative reversal day, which is more bearish than just a negative reversal seen on the SPY above. Still, the decline is minor compared to recent gains, and there is support just 8-18 points below yesterday's close.




The EAFE Index (I-fund) continues to shine with the help of the dollar which was down for a 4th straight day. At some points those gaps will come back into play so I wouldn't get too comfortable here in the short-term.




The dollar plunged right through the September lows yesterday. As we mentioned the other day, the head and shoulders breakdown target would be near 23.5, which is just below yesterday's close.




A longer-term view of the dollar shows the significance of the breakdown and that large bear flag (red) breaking down. A bounce back toward the bottom on that bear flag is always possible, which would help fill some of those gaps we see in the above chart.




The High Yield Corporate Bond Fund posted another negative outside reversal day, after we saw one last week. You can see what happened in November after the 2nd negative outside reversal day.




The AGG (bonds / F-fund) closer slightly higher on the negative reversal in stocks. The open gap was filled and but closed back below the gap after hitting the 20-day EMA and reversing lower.




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


Tom Crowley

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