TSP Talk Blog

The rally continued on Friday and, based on the prior action, seems to be going into yet another gear. The Dow jumped another 224-points. Of course 200+ points is no longer even a 1% gain, nonetheless, it is impressive. Optimism has moved into more of a fear of missing out.

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It appears to be a melt-up. We've used that term before but with each day that this rally moves exponentially higher, it becomes apparent that this is not a natural movement for stocks, but that doesn't mean it can't continue, although it does seem overly exuberant.

The C-fund / S&P 500 is up about 7.5% in January, which is a phenomenal month, but we've actually seen much better performing months in recent years, believe it or not. October of 2011 was up over 14%, for example. The difference this time is that back in 2011 the 14% gain in the S&P was a rebound from prior devastating losses, which is more common when we see months like this one.

I'll let you assess the current position of the cycle of emotions chart ...




Earnings have been very good, beating some of the already lofty expectations, and that has added fuel to the rally.


The SPY (S&P 500 / C-fund) traded from the bottom to the top of its narrow, sharply ascending trading channel on Friday. It's unlikely that this pace can continue much longer, but this market has continued to be full of surprises.




The weekly chart of the S&P 500 shows just how parabolic this last push higher has been. By any technical analysis measure, this is extended. On the other hand it is arguable whether stocks are fundamentally over priced or not.




The small caps / S-fund are holding up fine despite not making new intraday highs while the large caps were late last week. We did see some internal weakness again this week despite the indices doing just fine.




The Dow Transportation Index was up on Friday but surprisingly they are coming off a very rough week. The 20-day EMA and some old resistance is now being tested for support.




The EAFE Index / I-fund was up and of course much of that was because the dollar was down yet again.




The dollar rebounded for one day after comments by President Trump about a strong green back, but that rally failed to gain any momentum and it continues to flounder near multi-year lows and below some large open gaps.




The AGG (bonds / F-fund) had some opportunities for a relief rally and we did see a couple of big days for bonds last week, but it hasn't been able to stick and it looks like a bear flag below the 200-day EMA makes this look a little troubling. The Fed meets this week so there could be some volatility in bonds this week - up or down.

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

Tom Crowley


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