TSP Talk Blog

Stocks opened lower on Wednesday but quickly bounced back and the indices enjoyed big gains across the board. The Dow gained another 253-points, or 1%, and it was the laggard on the day. Small caps and the Nasdaq led with gains of 1.8%, while bonds were down again as inflation numbers continue to move higher.

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The futures were down sharply (250 Dow points) just before the open because of a higher than expected Consumer Price Index / inflationary report, but as soon as that opening bell rang, the buyers stepped in and the indices never looked back.

So, inflation and bond yields are on the move higher, and that was the major concern when stocks were correcting last week. Now the same news had no negative impact on the stock market. Is this another round of complacency from investors, or was the reaction to the inflationary concerns overblown?

Is the market going to go back to punishing the patient investors as we saw the latter half of 2017 and into January 2018? The S&P 500 and Dow are now 6.5% above their recent lows while the Nasdaq is 7.5% above its low. Just an FYI - and who knows what will happen this time - the 2015 and 2016 corrections saw relief rallies of about 8% before they pulled back again to test the lows.


The S&P 500 / C-fund moved sharply higher yesterday and as I mentioned above, it is now 6.5% above last Friday's lows, so that is quite a move. The 50-day EMA is in play again as yesterday's high came within 6-points of hitting it. The EMA is moving slightly lower each day right now, so it could be a test today near the 2707 area. That's a big test for this index since it will basically determine if we get a test of the lows or not in the coming days / weeks.




The small caps / S-fund had a big day as it stretched up to its important 50-day EMA. When above that EMA, it tends to hold as support - as we saw last week with the 200-day EMA. But once it is below, it may now act as resistance. We should know soon enough.




The EAFE Index / I-fund was up big and the dollar got pounded with a 0.77% loss which really helped the international stocks.




The High Yield Corporate Bonds created a possible positive outside reversal day but technically it is still below the 200-day EMA and we'll just have to wait and see if this important credit market indicator has the strength to get back above it. It looks like a possible bull flag but until it gets back above the 200-day EMA we may have to give the bearish case the edge.




The Volatility Index (VIX) moved sharply lower and is back below 20. Are we heading right back into a low volatility, high complacency market so quickly, or will those support lines hold in the 15.0 to 17.5 area?




The AGG (bonds / F-fund) just continues to get pounded as prices fall and yields rise. The yield on the 10-year Treasury moved over 2.9% yesterday, and while the stock market seemed to ignore that, the bond market is obviously suffering.

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

Tom Crowley

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